First results of oil and gas sanctions. The Kremlin is losing revenues and selling off reserves

April 14, 2023

Due to sanctions, the Kremlin lost its oil and gas revenues, and the Russian budget in the first quarter of 2023 experienced a significant deficit. The Russians will sell off a liquid portion of their reserves to keep the economy afloat and continue financing the war in Ukraine.

The EU sanctions on Russian oil, setting a price cap for sales to third countries, have been in place for almost five months, while sanctions against Russian petroleum products are in effect for two months.

Due to the strong dependence of the Russian budget on oil and gas revenues, this particular package of sanctions should be very painful for the Kremlin and weaken its ability to finance the war in Ukraine.

Of course, the Kremlin is trying to circumvent sanctions, using re-export schemes and redirecting oil and petroleum products to other markets, but even in this case, the Russians have to sell their oil and petroleum products with significant discounts.

As a result, in the first quarter of 2023 Russia lost $51 billion due to oil sanctions. Against this background, the Russian budget deficit in the first quarter of 2023 hit 2.4 trillion roubles ($28.9 billion) and will obviously grow further.

In order to continue financing the war and sustain the economy, the Kremlin has to sell the liquid part of its reserves, which have not been seized by Western countries and are mainly kept in yuans and gold. According to Russians sources, the Russian National Welfare Fund totalled 11.9 trillion roubles ($154.5 billion) at the beginning of April.

Thus, with the continuation and growth of the sanctions pressure, the Kremlin may well lose the opportunity to finance its military campaign in Ukraine, and the Russian military will be left without salaries, ammunition and food. This will significantly facilitate the task of the Armed Forces of Ukraine de-occupying Ukrainian territories.

The Ukrainian economy also suffers greatly from the war. However, Ukraine, which defends itself from the aggressor, enjoys strong support from its Western allies. According to Prime Minister Denys Shmyhal, Ukraine will receive $114 billion as long-term assistance. In addition, Ukraine receives aid from Europe and the United States to wage the war against the aggressor.

However, the war goes on, and every day brings new deaths of Ukrainian soldiers and civilians. If the sanctions pressure is increased to include new items in the sanctions list, such as sanctions on exports of Russian diamonds and revising the price cap on Russian oil and petroleum products, it will bring the defeat of the Kremlin closer, and therefore save the lives of thousands of people.

The Russians are gradually adapting to sanctions

Razumkov Centre’s leading expert Maksym Bielawski says that the position of Russian oil on the global market is changing contrastively. According to the February data, crude oil exports via the Black Sea ports fell by 20%, compared to January 2023, but already in the first half of March, Russia shipped twice as much oil as in the whole of February. More than 80% of it was sent to the Asian and Pacific market.

The recovery of China's economy contributed to the increase in demand. In particular, in February, the daily demand for oil increased to 15.52 million barrels, and according to Bielawski's estimates, it may exceed 16.2 million barrels per day in April. This trend will have an effect on the increase in Russian oil exports.

"In addition to the increase in the volume of Russian oil exports, the discount will decrease, and this, unfortunately, will be facilitated by the new quotation for Urals. The thing is that previously, the Argus price agency used CIF delivery to EU ports to calculate the Urals quotation, where the ownership of the goods changes at the port of destination. Now, a new quotation is in place, which is linked to DAP for consumers in India and determined by a poll among suppliers and traders. In fact, we are talking about an attempt to return Russian oil to the pre-sanctions price level," the expert says.

Despite this, according to Bielawski's calculations, by the end of 2023, Brent will not cost more than $90 per barrel. At least, this trend is suggested by the drop in oil prices, which reached the level of the fourth quarter of 2021 by March 21.

In February and early March, despite the embargo on Russian petroleum products, MED (Mediterranean) gasoline quotations fell by 7%, to $775 per ton. At the same time, on the European market, wholesale NWE gasoline quotations fell by $76, to $840 per ton. This price situation influenced the Ukrainian market, where the retail prices of gasoline and diesel fuel fell by 10%.


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"