Energy Sanctions Impact Summary

KSE Institute has published an Energy Sanctions Impact Summary examining the impacts of energy sanctions on the Russian economy. 

The Cost of Sanctions. The research estimates that Russia has lost $78.5 billion in oil export earnings compared to a no-sanctions scenario from December 2022 to June 2024). Monthly losses peaked at $8.6 billion in January 2023 following the EU embargo and price cap. However, since mid-2023, the losses have stabilized at an average of $2.8 billion per month.

In response to the sanctions, Russia has spent approximately $8.5 billion in building a fleet of sanctions-proof tankers. A significant portion of this expenditure occurred between Q4 2022 and Q2 2023, with the shadow fleet comprising 435 vessels as of Q1 2024.

Vessel Designation Campaign. Started by the US sanctions campaign on shadow fleet tankers, temporarily widened the discount on Russian oil prices. Of the 55 designated vessels by the US, EU, and UK, only one completed a voyage, while 41 remained idle. The discount on Russia’s Urals crude rose from $13.7 per barrel in September-October 2023 to $18.3 per barrel in January 2024. However, rising global oil prices offset this, allowing Russia to maintain higher export earnings.

Pause in the Campaign. The pause in the designation campaign, that started in the spring of 2024 due to concerns regarding the supply of Russian oil to the global market, has allowed Russia to adapt. Russia has shown resilience by acquiring additional shadow tankers, though at high costs and practical challenges. KSE Institute found that Russia has options to replace sanctioned vessels and maintain/expand its shadow fleet.

Price Cap Сompliance. The G7 price cap regime is at risk of completely losing its leverage. As of June 2024, 89% of Russia’s crude oil and 38% of oil products were transported by sanctions-proof shadow fleet vessels, up from 45% and 29% in early 2023. This highlights Russia’s efforts to evade the oil price cap.

The share of Russian seaborne crude oil sold below the $60 per barrel price cap sharply declined in the second half of 2023. By Q4 2023, only 2.0% of all seaborne exports were sold below the cap.

Macroeconomic and Fiscal Trends. Despite sanctions, Russia’s macroeconomic and fiscal stability remains strong. In H1 2024, monthly oil export earnings averaged $17.3 billion, 22% higher than H1 2023. This resulted in a current account surplus of $40.6 billion, indicating economic resilience.

Despite increased war spending, Russia’s cumulative federal government deficit stood at 930 billion rubles as of June 2024, 60% smaller than in H1 2023. Inflation pressures led to a 1050 basis point rise in the key rate by the Central Bank of Russia since mid-2023, yet inflation remains high.

Loss of Natural Gas Market. Russia has lost its primary natural gas market in Europe. Attempts to leverage natural gas flows backfired, resulting in Gazprom’s first loss since 1999 and an unlikely recovery of European sales for years.