Russia's revenue from fossil fuel exports collapsed in December, a new report suggests, which could significantly hamper President Vladimir Putin's ability to finance the war in Ukraine.

The ban on Russian oil imports into the EU and the imposed price cap of $60 per barrel cost Russia 160 million euros per day, but additional measures could multiply the negative impact.

This is stated in a report by the Center for Energy and Clean Air Research (CREA) released on Wednesday.

CREA is an independent Finnish think tank.

As sanctions and the costs of the military invasion of Ukraine take a toll on Russia's economy, the country is more dependent than ever on revenue from fossil fuel exports, the analysis found.

At the same time, the EU has taken massive steps over the past year to end its dependence on Russian fuel imports and to stop funding the Kremlin's unprovoked and illegal assault on Ukraine and Europe.

The short-term excess profits generated for Russia by exceptionally high fossil fuel prices in 2022 are beginning to run out, in part due to the reduction in fossil fuel consumption induced by the high prices.

Therefore, further cuts to the Kremlin's revenue will significantly weaken the country's ability to continue its aggression and help end the war.

In its report, CREA assesses the impact of the measures taken by the EU and Ukraine's other allies so far and identifies additional opportunities to drain the Kremlin's military assets.

The current account of the EU with a deficit of 90.2 billion euros

Russia's fossil fuel export earnings fell 17% in December to the lowest level since the country's full-scale invasion of Ukraine began.

The EU ban on the import of Russian oil and the imposed price ceiling (from 60 dollars per barrel) cost Russia about 160 million euros per day.

The decline in supply volumes and prices of Russian oil reduced the country's export earnings by 180 million euros per day.

At the same time, Russia was able to recover 20 million euros per day by increasing exports of refined petroleum products to the EU and the rest of the world, resulting in a net daily loss of 160 million euros, CREA said.

The EU measures led to a 12% drop in Russian crude oil exports and a 23% drop in sales prices, which in turn caused a 32% drop in Russian crude oil export earnings in December.

According to analysis by the Center for Energy and Clean Air Research, Russia still earns about 640 million euros a day from fossil fuel exports, but that is down from very high profit levels of about 1 billion euros a day in the period March to May 2022

The EU's ban on refined oil imports, the extension of the refined oil price ceiling and reductions in pipeline oil imports to Poland will reduce that amount by another roughly 120 million euros a day until February 5, CREA estimates.

The EU still remained the largest importer of oil from Russia in December, including pipeline crude and all petroleum products.

However, that is likely to have changed since Germany stopped importing Russian oil through pipelines at the end of December and the EU ban on Russian petroleum products came into effect in February.

Japan, meanwhile, became the biggest importer of liquefied natural gas (LNG) from Russia as European buyers cut purchases.

China, South Korea, Turkey, India and Japan are the largest importers of coal.

So far, Russia has shipped EUR 3.1 billion worth of crude oil covered by the price cap, resulting in approximately EUR 2.0 billion in tax revenue for the Russian government.

However, this tax revenue could be almost completely eliminated by revising the price ceiling to a level that is much closer to Russia's production costs, CREA reports.

A CREA analysis states that cutting the upper bound on crude oil prices to $25-$35 a barrel, which is still well above Russia's production and transportation costs, would reduce Russia's oil export earnings by at least 100 million euros per day.

The coalition behind the price cap has strong leverage to pressure prices - Russia has not found a meaningful alternative to vessels owned and/or insured within the framework of the G-7 to transport Russian crude oil and petroleum products from Baltic ports and Black Sea, CREA points out.

In the Pacific, Russia continues to use UK-insured tankers to sell oil to China, even though the market price of oil is above the price ceiling level.

In view of this, new measures are needed against the insurers and tankers engaged in this trade.

Further measures available to the EU and allies could further reduce Russia's fossil fuel export earnings by around 200 million euros per day from the level predicted after the ban on petroleum products and the price cap.


oil sanctions