Summary

• Russia's fossil fuel export revenue dropped in December, impacting their ability to finance the war in Ukraine.
• Western measures such as EU ban on seaborne imports of Russian crude and G-7's price cap cost Moscow $171.8m per day.
• Western measures are suggested to be effective in curtailing Russia's revenue, further pressure needed to help Ukraine prevail.

A new report from the Centre for Research on Energy and Clean Air (CREA), an independent Finnish think tank, has revealed that Russia's revenue from fossil fuel exports collapsed in December, significantly hampering President Vladimir Putin's ability to finance the war in Ukraine. The findings illustrate the effectiveness of targeting Russia's oil revenue and underscore the urgent need for Western policymakers to increase the financial pressure on Moscow in order to help Kyiv prevail.

The report found that the first month of the European Union's ban on seaborne imports of Russian crude and the G-7's price cap had cost Moscow an estimated 160 million euros ($171.8 million) per day. This resulted in a 17% fall in Russia's earnings from fossil fuel exports in the final month of 2022, and represents the lowest level of revenue since Putin launched his full-scale invasion of Ukraine in late February.

CREA's report stated that the Western measures were largely responsible for the fall in Russia's earnings and that they have "the tools to help Ukraine prevail against Russia's aggression." The report's lead analyst, Lauri Myllyvirta, said in a statement, "It's essential to lower the price cap to a level that denies taxable oil profits to the Kremlin, and to restrict the remaining oil and gas imports from Russia."

The Group of Seven, Australia, and the EU implemented a $60-per-barrel price cap on Russian oil on December 5th. This came alongside a move by the EU and U.K. to impose a ban on the seaborne import of Russian crude oil. Together, these measures reflect the most significant step to curtail the fossil fuel export revenue that is funding the Kremlin's onslaught in Ukraine.

Energy analysts had been skeptical about the impact of a price cap on Russian oil, particularly as Moscow had been able to reroute much of its European seaborne shipments to countries like China, India, and Turkey. Russia retaliated against the Western measures late last month by banning oil sales to countries that abide by the price cap.

CREA's report found that the measures caused a fall in shipment volumes and prices for Russian oil that has cut the country's export revenue by 180 million euros per day. Moscow has been able to claw back 20 million euros per day by increasing exports of refined oil products to the EU and the rest of the world, resulting in a net daily loss of 160 million euros since the Western measures came into force.

Despite this, Russia still makes an estimated 640 million euros per day from exporting fossil fuels, according to the report. Oleg Ustenko, economic advisor to Ukrainian President Volodymyr Zelenskyy, said that while it is "very good news" that Russia is losing revenue from fossil fuel exports as a result of the Western measures, they were "definitely not enough." He called for a price cap that is set at a much lower level, saying that each escalation of economic sanctions against the Kremlin should see the oil price cap come down to a target range of $20 to $30 a barrel.