Russian oil revenues fell by almost a third in the first quarter of 2023, when compared with revenues in the fourth quarter of 2022. Moreover, a large share of the fall fell on Western sanctions. According to estimates by the Kiev School of Economics (KES), whose study is cited by Bloomberg and the Financial Times , 75% of this drawdown was due to Western sanctions and only 25% to the market drop in energy prices. However, one grade of Russian oil has proven resistant to the price ceiling imposed by the Western coalition.
We are talking about the premium grade of Russian oil ESPO (Eastern Siberia – Pacific Ocean, named after the pipeline through which oil goes to the Far Eastern ports). With the ceiling set at $60 per barrel, the average quarterly cost of ESPO was $73.14 per barrel, about $10 cheaper than the world benchmark Brent, to which Russian quotes are pegged. According to CASH, almost all Far Eastern oil supplies were carried out at a price well above $60 per barrel, but the problem is different – about half were carried out with the participation of Western insurance and logistics companies, which is a violation of the sanctions regime.
“A significant part of deliveries from the port of Kozmino is carried out in violation of the established price barrier. We can say with a high degree of certainty that Western companies are involved in the shipment of oil sold above the established ceiling, ”Bloomberg quotes from the study.
CES calls on Western countries to tighten monitoring and take measures so that companies stop violating the established ceiling. Based on the technical characteristics, it is believed that ESPO is better than Brent and even Dubai Crude benchmarks, which are recognized as international standards. The Russian grade has a low sulfur content, which makes it especially attractive for oil refining – the cost of refining oil to gasoline and other fuels is much lower than, for example, the Urals brand. Thus, the market value of ESPO, ceteris paribus, could exceed the value of Brent and Dubai Crude.
But the sanctions against the Urals brand are working successfully: the discount for this grade increased from $17.4 per barrel in December to $23.2 in March, and about $5.2 billion of lost export earnings accounted for the drawdown in price. In monetary terms, Russian oil revenues (oil + oil products) in the first quarter of 2023 fell to $38.8 billion, compared to $54.5 in the last quarter of 2022.
Russia lost about $6.1 billion due to the overall decline in exports, which takes place against the backdrop of a decrease in domestic production. According to the CES, oil exports from Russia fell by about 12% compared to the same period last year. The decline in exports is due to the loss of the European market – Russia simply cannot redirect its volumes to other markets and is forced to reduce exports first, and now production.
According to researchers, the average cost of Russian oil for India, which bought Urals, previously intended for Europe, was $43.9 per barrel in the first quarter, and $71.8 per barrel for China, which bought mainly premium ESPO. The Russian authorities are trying to regain former oil revenues, but so far they have had little success. Threats to drastically reduce production were not carried out – the International Energy Agency (IEA) previously stated that Russia had not fulfilled its own plan to reduce oil production, and the mechanism proposed to Russian companies to reduce the discount has not yet been fully operational.