Winners and losers of a Russian oil-export restriction

Russia has on several occasions threatened to limit its oil exports as part of its energy-economic warfare. Using a quantifiable short-run model of oil trade and detailed production and consumption data, this paper evaluates the winners and losers of potential Russian oil-export reductions and connects these to the potential interests of the Russian regime, including Russia’s oil producers and consumers and its international friends and foes. We find that Russian producer profits would fall for any export restriction even as world oil prices increase. For example, a reduction of 10% of exports would yield Russian producer-profit losses of USD 290 million per day, equivalent to 5% of GDP, mostly due to lower domestic prices. Hence, an export restriction would substantially harm Russia’s oil-industry interests, including the oligarchs and elites benefiting from this trade. However, Russian consumers benefit from an export restriction, as they get access to cheaper oil if Russia exports less. Adding these benefits, an export restriction up to 12% causes net gains for Russia’s oil producers and consumers combined. Categorizing countries into those Russia may consider as foes, friends, and neutrals and using data on their oil consumption and production, we find that foe countries lose the most in absolute terms but friend countries lose more relative to their GDP. Hence, the Russian regime cannot restrict its oil exports without incurring a high collateral cost on its international friends. In sum, to motivate an export restriction, the Russian regime would need to put an order of magnitude more weight on its interest in causing international harm than on its own oil industry’s profits; or it would need to put a high weight on benefiting its own consumers instead of its oil industry.