WASHINGTON, June 16 (AP) — A top Treasury Department official said Thursday that curbs on Russia’s oil prices are slashing its biggest source of revenue as it wages war in Ukraine.
When the United States and other economic powers in the Group of Seven, as well as the European Union and Australia, announced an ambitious plan to cap Russian oil prices last year, U.S. officials said it would deal a severe blow to the Russian economy.
“In just six months, at a critical point in the war, price caps have resulted in a massive decline in Russian revenue,” Treasury Undersecretary Woli Adeyemo said Thursday in a speech at the Center for a New American Security, noting that nearly 50 Russian oil revenues fell by a percentage compared to the same period last year.
The introduction of the price cap comes amid doubts and hopes that the policy will stop Russian President Vladimir Putin from invading Ukraine.
In addition to the price caps, the allies have imposed thousands of sanctions on Russia during the nearly 16-month war. The sanctions target banking and financial transactions, technology imports, manufacturing and Russians with ties to the government.
Adeyemo recently said new taxes on oil companies that the Kremlin imposed to make up for the revenue shortfall were evidence of the cap’s success.
“This change will limit the growth of Rosneft, leaving them with less money to spend on exploration and production, and over time weaken the production capacity of the Russian oil sector,” he said. “There is clear evidence that it has succeeded.”
Lauri Myllyvirta, an analyst at the Energy and Clean Air Research Center in Finland, said that while the price cap had an impact on the Russian economy, the EU’s import ban had a bigger impact on reducing Russian oil revenues.
The European Union last year announced a ban on imports of Russian oil and other products from Russian refineries. In February, Europe imposed a ban on Russian diesel.
“The combination of the EU oil import ban and the price cap did have an impact,” Myllyvirta said, “but the EU import ban is the more impactful measure.”
Myllyvirta also said the cap was too high to have a more meaningful impact on Russian oil revenues. The price ceiling for Russian oil has been kept at $60 a barrel.
In response to the punitive measures, Russia cut oil production and this month announced an extension of 500,000 barrels per day of cuts until the end of December 2024.
“This is a precautionary measure in coordination with countries participating in the OPEC+ agreement, which had previously announced voluntary production cuts in April,” Russian Deputy Prime Minister Alexander Novak wrote on the government website.
Voluntary production cuts may also be partly due to weaker demand.
The International Energy Agency released its five-year forecast for oil demand this week, suggesting that the fossil fuel’s dominance of drivers is starting to wane.
It’s part of a larger trend in which countries’ efforts to combat climate change by switching to renewable energy sources will start to reduce demand, which in turn could weaken the economies of countries like Russia.
Forecasts indicate that gasoline demand will peak in 2023, while overall transportation fuel demand will peak in 2026. The IEA noted that this was “the result of a shift to lower-emissions sources sparked by the global energy crisis,” along with higher efficiencies and rising sales of electric vehicles. (Associated Press)
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