The Oil Price cap and Embargo on Russia Are Working Imperfectly
The unprecedented and extensive sanctions to limit Russia’s oil export income, including the EU embargo and an oil price cap imposed by the Group of Seven (G7) countries in December 2022, have successfully reduced Russia’s export earnings and budget revenues.
In the wake of the sanctions, Russia’s current account surplus fell from $124 billion in January–May 2022 to $23 billion in the same time frame in 2023. The Russian Ministry of Finance also reported about a 50 percent year-on-year drop in government oil revenues in January–May 2023 and a widening budget deficit. Less clear is the impact of each different measure initiated by the West to punish Russia for its invasion of Ukraine in early 2022. Evidence indicates, however, that the embargo has had more of an effect than the price cap, in part because the cap’s level is too high and enforcement is lacking.
This article, based on the DGAP Policy Brief No. 10, May 16, 2023, was published by the Peterson Institute for International Economics (PIIE) on July 13, 2023, here.