🇷🇺 Oil Revenues Continue to Decline Despite Increasing Export Volumes

In May 2024, Russian oil export revenues dropped to $16.8 billion, despite higher export volumes, according to the KSE Institute’s June ‘Russian Oil Tracker.’ Increased export volumes and the active use of the shadow fleet did not compensate for the lower oil prices.

Russian seaborne oil exports increased by 4%, driven by a 17% MoM rise in oil products exports after refineries have been restored from Ukrainian drone attacks in January-April. Only 12% of crude and 62% of oil products were shipped with IG P&I insurance. In May 2024, IG-insured tankers shipped no crude from Pacific Ocean ports for the first time.

For other shipments, Russia actively uses the shadow fleet. KSE Institute estimates that 220 loaded Russian shadow fleet tankers left Russian ports, with 3 involved in STS transfers in May 2024. Notably, 83% of these vessels were over 15 years old. Using these aging vessels not only allows Russia to exceed the oil price cap and increase profits but also poses a significant environmental risk in the event of an oil spill at sea.

India, China, and Turkey made up 95% of Russian crude oil exports in May, supporting demand for Russian oil. India, the largest importer, cut seaborne crude imports by 13% to 1,812 kb/d. Turkey, the top oil product buyer, saw an 11% MoM drop in imports. However, it remained the third-largest crude importer, with an increase of 42% or 120 kb/d MoM.

The US Treasury’s designation of individual vessels has removed most shadow tankers from regular commercial service. As of June 12, 2024, out of 41 sanctioned vessels, 34 remained idle with no scheduled voyages. The remaining vessels completed or partially completed voyages with Russian or non-Russian oil, showing Russia’s efforts to bring OFAC-sanctioned tankers back into commercial use. Lifting the commercial cargo by sanctioned vessels may undermine the overall effectiveness of the US Treasury designations, if secondary sanctions are not imposed on all participants touching Russian oil shipped by these tankers.

Despite EU/G7 sanctions, new tankers come to Russia monthly for oil exports. In May, 14 new tankers that had not shipped Russian oil from January 2023 to April 2024 were loaded in Russian ports. Six are part of the shadow fleet, with 2 transporting Venezuelan oil in 2022-2023. The other 8 belong to the legitimate fleet: 5 managed by EU/G7 companies and 3 by non-EU/G7 companies but with IG P&I insurance.

Moreover, Russia employs strategies to bypass sanctions, such as Ship-to-Ship (STS) transfers to conceal the origin of its oil, utilizing Very Large Crude Carriers (VLCCs). Between December 2023 and May 2024, Russia used 14 VLCC-class tankers for STS operations; 13 carried Iranian or Venezuelan crude in 2022-2024, with only 2 having IG P&I insurance. In June, Russia used 2 Emirates and 1 Chinese tanker without IG P&I insurance to transship oil to the Vietnamese VLCC tanker Rolin, also without IG P&I insurance.

The active use of a shadow fleet and sanctions evasion allows Russia to bypass oil price caps. In May 2024, Urals FOB Primorsk and Novorossiysk prices fell by $7.6/bbl but remained ~$5/bbl above the cap. The Urals discount to Brent narrowed by $0.5/bbl, and ESPO by $2.6/bbl from the previous month.

KSE Institute projects Russian oil revenues to reach $177 billion and $141 billion in 2024 and 2025 under the base case with current oil price caps and stronger sanctions enforcement. However, if sanctions enforcement is weak, Russian oil revenues could increase, reaching $198 billion in 2024 and $186 billion in 2025.

We propose three measures to address Russian evasion of oil export sanctions: 

1. G7/EU should ensure price cap compliance by using financial institutions’ transaction knowledge, requiring reputable attestations, and increasing documentary evidence requirements.

2. EU coastal states should use geographical “choke points” to limit Russia’s shadow fleet by requiring proper spill insurance for tankers in their waters.

3. Price cap coalition countries should increase penalties for violations, with tougher fines and longer lockouts for G7/EU companies, and direct or secondary sanctions for third-country actors.