Despite sanctions, trade goes on. How Russia manages to maintain volumes of crude oil shipments, at a cheaper price though

February 07, 2023

Unfortunately, after the EU embargo on Russian crude oil that came into effect on December 5, 2022, Russia managed to diversify shipments, although the Kremlin has lost many petrodollars. The Ukrainian diplomats should continue to press for a reduction of the price cap on Russian oil.

On Sunday, February 5, the European Union embargo on Russian petroleum products became effective. At the same time, 2 months have passed after the introduction of the embargo on crude oil imports. During the negotiation of the embargo and the price cap on oil sales to third countries, heated debate continued in Brussels, and the European media speculated about a deficit and losses for the European economy. After two months of the oil embargo a collapse did not happen, and the EU imposed sanctions on petroleum products.

Russia, preparing for the embargo, knocked up a shadow fleet and diversified exports. After the embargo, Russian oil exports fell significantly, but the Russians managed to redirect their shipments from Europe to Asia. China and India became the new largest buyers of the Russian oil. However, in order to find a buyer even there, the Russians have to sell their hydrocarbons at a big discount. 

The Russians probably have to dump because they want to maintain the level of production and are afraid that if they cut it, they will not be able to quickly restore it again, since the largest oil service companies left Russia back in March last year. And in the event that Russia significantly reduces production, it may be a shock for the West, but over time, other countries will replace Russia in the hydrocarbons market.

Meanwhile, the actual price of Russian oil shipments fell significantly after the embargo. As a result, the Russian budget revenues also fell dramatically. Thus, according to the Russian Finance Ministry, the total oil and gas revenues of the Russian budget decreased more than two-fold in January. To make up for these losses, the Russian Central Bank had to sell yuan to the public on the Moscow Stock Exchange. At the same time, again according to the Russian Finance Ministry forecasts, in February, the losses of the Russian budget from the oil embargo will increase three-fold. Since oil and gas revenues form a significant part of the Russian budget, the Kremlin's ability to wage war in Ukraine depends on these revenues.

Generally speaking, two months after the embargo came into force, the EU managed to avoid a deficit on the one hand, and to limit the Kremlin's incomes and somewhat weaken its ability to finance the war in Ukraine, on the other. It is clear that the Western leaders acted with caution, fearing a shortage in the oil market, that is why the current price cap on Russian oil is higher than recommended by Ukraine and its East European allies. At the same time, this cap may be revised, most likely, in the spring, when Europe adapts to the sanctions on Russian petroleum products.

Russia is losing petrodollars due to lower oil prices 

Razumkov Centre expert Maksym Bielawski says that the effect of oil sanctions is in place, and the volume of Russian oil sales is decreasing.

"In January, tax and customs payments to the Russian budget from the sale of oil fell by 46% compared to the same period last year. We talk about approximately 6 billion dollars. As of February 1, the real selling price of the Russian oil fell by nearly a third," Bielawski says.

He notes however that the volumes of shipments of raw materials remained practically unchanged. For example, while in April 2022 crude oil exports amounted to 3.444 million tons, in January, 2023, Russia exported 3.668 million tons. So, the volume of shipments after the introduction of the embargo is practically the same as it was at the beginning of the full-scale war.

"Revenues to the Russian budget fell not due to a decrease in shipments, but solely as a result of the drop in the price of Russian raw materials. This points to the need to reconsider the Russian oil price ceiling. There is every reason to revise the price cap. Perhaps it will be revised, most likely, in March, after a period of adaptation to the oil embargo. In general, we need to have the price cap on Russian oil at the level of the average median of quotations for the past five years, namely USD 34.5 per barrel. This is quite real, I don't see any particular problems here, only political will is needed," the expert noted.

At the same time, he stressed that European countries, such as Greece, which are currently making money from the transportation of Russian oil, could refocus on oil from the Persian Gulf, instead of helping the aggressor state.

"During a severe economic crisis in Greece, the EU spent hundreds of billions of euros to support the Greek economy. If that country wants to remain a full-fledged part of Europe, it should side with the democratic world," says Bielawski.



Maksym Bielawski

Leading Expert, Energy Programmes

Born in 1986 in Zhytomyr oblast


Zhytomyr State Technological University (2008)

Ph.D in Technical Science (2010)

Ivano-Frankivsk National Technical University of Oil and Gas (2012)

Author of 17 patents and 100 scientific works

Work Experience:

2008 – 2011 — Operator of Gas Infrastructure Units, Controller of Gas Transmission System in Rivne Division of PJSC "Ukrtransgas"

2011 – 2017 — Leading Engineer, Deputy Head of Press-Service, Head of Public Relation Department of PJSC "Ukrtransgas"

2017 – 2018 — HR Director of PJSC "Maine Gas Pipelines of Ukraine", Advisor to the Minister of Energy and Coal Industry of Ukraine

2021 — Director of Integrated Communications of NJSC "Naftogaz of Ukraine"