CREA: Increase in Russian oil revenues reveals flaws in price cap

Russia’s oil revenues rose in March and April from levels recorded in January and February, reaching the highest level since November 2022, exposing the failure of price caps, according to an analysis by the Center for Energy and Clean Air Research (CREA) on Wednesday, Anadolu Agency reported. .

The analysis said the policy of capping Russian oil at $60 per barrel got off to a good start when it took effect in December 2022, but lost “integrity and credibility” as members of the Price Cap Coalition failed to revise price levels and implement policy.

“The EU has not fulfilled its obligation to review the price ceiling every two months to ensure that it remains lower than the average market price,” said CREA’s lead analyst and co-author of the report, Lauri Myllyvirta.

According to the analysis, even when the price of Urals crude increased above the price ceiling in April, tankers continued to transport Russian oil.

“This is a clear indication that enforcement is not working,” Myllyvirta said.

Russian oil revenues increased by 14 percent in April, and oil tax revenues by six percent on a monthly basis. However, revenues remained significantly below the level of April 2022 when oil prices were increased.

CREA’s energy analyst Isaac Levi noted that “Kremlin tax revenues closely followed Russian crude oil prices, underscoring the importance of the oil price ceiling.”

“Without proactive measures to continually revise price caps and fill gaps in enforcement, we can expect Russia to successfully restore its revenues,” Levi said.

He added that unless the price cap coalition takes action to lower the price ceiling and fill the gaps in implementation, changes to Russia’s oil taxation structure will adjust the price of Russian crude oil to international benchmarks, leading to further recovery in Russian oil revenues and failure system of price restrictions.

It is estimated that Russia has made around 58 billion euros in revenue from overseas oil exports since the introduction of import bans and price restrictions in the EU.

CREA’s analysis shows that Russia’s revenues could be reduced by 22 billion euros, or by 37 percent, if the upper limit of the crude oil price drops to $30 per barrel and the upper limits of the prices of petroleum products are revised accordingly.

CREA has called for a ban on the entry of tankers that violate price restrictions into EU and G7 ports and territorial waters. They also called for the reduction of the oil price ceiling to a level closer to production costs in Russia, which are estimated at around $15 per barrel.

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