Markets Wired

WASHINGTON — Today, the U.S. Department of the Treasury’s Office of Terrorist Financing & Financial Crimes and Office Economic Policy released a progress report that underscores the price cap on Russian oil’s success in achieving its dual goals: reducing Russia’s revenue and keeping the global energy market stable. Treasury, the U.S. government, and the price cap coalition will continue to monitor dynamics in the global oil market going forward in support of these goals

The report, authored by Assistant Secretary for Terrorist Financing & Financial Crimes Elizabeth Rosenberg and Acting Assistant Secretary for Economic Policy Eric Van Nostrand, comes nearly one year after leaders of the G7 countries – led by President Biden – endorsed the price cap at the G7 Summit in Elmau, Germany. It also follows Secretary Yellen’s consultations on the price cap with fellow G7 finance ministers last week in Niigata, Japan and nearly six months after the cap on Russian crude oil exports was implemented.

Report Highlights:

• According to the Russian Ministry of Finance, federal government oil revenues from January–March of 2023 were over 40 percent lower than a year prior. This is Russia’s single-most important source of federal revenue. Before the war, oil revenues constituted 30–35 percent of the total Russian budget. In 2023, oil revenues have fallen to just 23 percent of the Russian budget.
• This decline in revenue has occurred despite Russia’s exporting roughly 5 to 10 percent more crude oil in April 2023 compared to March 2022.
• In response to the price cap, Russia has been forced to alter the way it taxes oil such that it institutionalizes the discounted value of Russian crude—essentially writing into law the steep discount the price cap has helped cement.
• Despite widespread initial market skepticism around the price cap, market participants and geopolitical analysts have now acknowledged that the price cap is accomplishing both of its goals.

Read the full report here.