Russian oil exports have surged to their highest levels since April 2020, rising by 600,000 barrels per day to 8.1 million barrels per day in March 2023, according to the International Energy Agency.
While volumes are back up, revenue is down by 43 percent compared to a year ago. The decline in revenue is driven by the drop in oil prices — Brent is trading at just under $85 per barrel, down 24 percent from a year ago — and the $60 Russian oil price cap set by the G7 and allies.
Who’s buying Russian oil? China and India have replaced Europe as the main buyers of oil from Russia, accounting for around 90 percent of Russian oil exports, according to analytics firm Kpler. Indian refiners are then exporting products derived from Russian oil to Europe.
Gulf Arab exporters get into the Russian oil arbitrage business: Oil exporters Saudi Arabia and the United Arab Emirates are also purchasing discounted Russian oil as part of an arbitrage play. They use the discounted Russian oil for local purposes and export their domestic production abroad at higher market-rate prices.
So are the Russia sanctions and oil price cap working? U.S. officials say the Russian oil price cap is having its intended effect, putting a dent into Russian revenue while keeping market prices stable. Russia, according to an assessment by Bloomberg Energy, needs oil to trade at around $100 per barrel to pay for its Ukraine war.
Russia was hit with a record budget deficit in January as the price of Urals crude oil plunged below $50 per barrel. Alexandra Prokopenko, a Russia expert at the Carnegie Endowment for International Peace, says the “sanctions noose is tightening,” but notes that Russia can avail its sovereign wealth fund, the National Wealth Fund, to bridge the budget deficit.
Meanwhile, Urals crude has since rebounded to over the $60 price cap. And Japan recently purchased Russian oil above the price cap.
The big winners: The G7’s Russian oil price cap amounts to a subsidy for many of Asia’s biggest energy players: China, India, Saudi Arabia, and the UAE. Not only are these countries deepening their energy partnerships with Russia, but they’re also increasingly using alternatives to the U.S. dollar as payment.
Indian refiners like Reliance Industries are using Emirati dirhams to purchase Russian oil to reduce their risk of exposure to Western sanctions on Russia. Pakistan may too opt for the dirham or the Chinese yuan to buy Russian oil. The sanctions and oil price cap could hasten the emergence of the Petroyuan.
The bottom line: Moscow is hurting, but not reeling from the oil price cap. And the cap, along with Western sanctions, is accelerating the emergence of a multipolar economic and geopolitical order.