Assessing the impacts of oil sanctions on Russia

This paper evaluates the effects of the two most important oil sanctions imposed on Russia since its full-scale invasion of Ukraine—the EU import embargo and the G7 price cap. Using data on prices, discounts, trade patterns and transport, and based on previous research, we assess these sanctions’ individual and combined impacts. We conclude that the import embargo has likely been the most consequential sanction, reducing Russian oil income through a buyer's discount and by increasing transport costs. Furthermore, the price cap has not primarily functioned as a binding price cap, but as a partial transport embargo, reinforcing the import embargo's effects. Going forward, we find that Russian oil revenues are determined by three factors: First, the world oil price is determined by the global supply and demand for oil. Then, the buyer's discount is deducted, which gives the price of Russian oil at the buyer's port. Finally, transport costs are deducted, which provides the selling price in Russian ports, i.e., Russia's oil revenue. Importantly, while all these three factors are in theory determined as one equilibrium, we conclude that in practice they can be treated separately. We briefly discuss specific European and Russian policies that influence these three factors. This paper evaluates effects and workings of the EU import embargo and the G7 price cap on Russian oil. Of the two, the import embargo has been the most consequential. The price cap has not functioned as a binding price cap, but as a partial transport embargo. The two sanctions have reinforced each other. Total Russian losses are at least 0.9 % of Russian GDP (conservative assessment). A simplified equation determining Russian oil income under sanctions is presented. Specific European and Russian policies that influence Russian oil income are discussed.