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The Impact of the 2022 Oil Embargo and Price Cap on Russian Oil Prices

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Abstract

This paper documents the effect of the oil embargo and price cap on Russian oil exports in the wake of the Russian invasion of Ukraine in February 2022. We show that the embargo forced Russia to accept a $32/bbl discount on its Urals crude in March 2023 relative to January 2022, nearly half of which is directly attributable to the higher cost of shipping crude oil over longer distances, as Russia diverted much of its crude oil exports to India. Based on a calibrated model of global oil supply and demand, the remainder ($17/bbl) can be explained by increased Indian bargaining power. We also provide a similar analysis for the ESPO price discount on exports to China. In contrast, the price cap deprived Russia of the financial resources it spent on assembling a “shadow” fleet of tankers, but its effect on the Russian oil export price was negligible once the adoption of the price cap had facilitated the use of Western services to transport Russian oil to Asia.

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  • Lutz Kilian & David Rapson & Burkhard Schipper, 2024. "The Impact of the 2022 Oil Embargo and Price Cap on Russian Oil Prices," Working Papers 2401, Federal Reserve Bank of Dallas, revised 31 Jan 2025.
    • Handle: RePEc:fip:feddwp:98000
    DOI: 10.24149/wp2401r1
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    1. Lutz Kilian, 2009. "Not All Oil Price Shocks Are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market," American Economic Review, American Economic Association, vol. 99(3), pages 1053-1069, June.
    2. repec:aen:journl:ej35-1-02 is not listed on IDEAS
    3. Giulia Brancaccio & Myrto Kalouptsidi & Theodore Papageorgiou, 2020. "Geography, Transportation, and Endogenous Trade Costs," Econometrica, Econometric Society, vol. 88(2), pages 657-691, March.
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    Cited by:

    1. Tadashi ITO & Kiyoyasu TANAKA, 2026. "Oil Laundering: How did Russian oil circumvent the European Union’s embargo?," Discussion papers 26024, Research Institute of Economy, Trade and Industry (RIETI).
    2. Stephen W. Salant & Diego S. Cardoso & Julien Xavier Daubanes, 2026. "The Price Ceiling that Minimizes an Exporter’s Profits Without Raising the Buyers’ Price Excessively," CESifo Working Paper Series 12608, CESifo.

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    JEL classification:

    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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