The credibility of Russian oil sanctions is at risk if the West doesn't lower its price cap, think tank says

• Russia's oil export revenue is climbing back up from early 2023 lows, a CREA report said.
• It shows a weakening in the effectiveness of the Western price cap, the think tank warned.

Russia's oil export revenue rebounded in March and April from earlier in the year as prices exceeded the West's cap, according to a report from the Center for Research on Energy and Clean Air.

Revenue climbed 14% from February to April, hitting the highest level since November — a month before the price cap took effect.

"The price cap coalition countries need to get a grip on their own policy to avoid losing the initiative in the sanctions game of whack-a-mole to Putin permanently," the CREA report said. "Without an effective price cap policy being enforced and adhered to, the price cap will be unsuccessful in its aim of lowering Putin's revenues to fuel the war against Ukraine."

In December, the European Union and G-7 countries banned companies in their jurisdictions from facilitating the export of Russian oil, unless it was sold for less than a $60 per barrel.

For the first months of 2023, the price proved effective, as both the tax revenue on oil products and the price of Russia's Urals crude fell.

But prices climbed above the cap in April, with European-owned and insured tankers still moving Russian oil, indicating enforcement was effective, CREA said.

What's more, CREA pointed out that the European Union had not maintained its plan to revise the cap every two months, dulling its usefulness.

The think tank proposed a price cap of $30 per barrel, which would be closer to Russia's production costs of $15 per barrel but still high enough to keep supplies flowing to global markets. A cap at that level would have slashed Russia's oil revenue by 37%, CREA estimated.

"Unless the price cap coalition takes action, changes to Russia's oil taxation structure will force the price of Russian crude oil closer to international benchmarks, leading to further recovery of Russia's oil revenue, which would damage the impact and credibility of the sanctions," the report said.

"Strengthened enforcement of the price caps and lower price cap levels are needed if the architects of the oil price cap policy want it to function as a credible policy and to lower Russia's oil export revenues."