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

This paper documents the effect of the oil embargo and price cap on Russian oil prices and 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 export price 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 most of these 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 in the Urals market. We also provide a similar analysis for the ESPO price discount on exports to China. The price cap, in contrast, may have alleviated concerns about a possible disruption of Russian oil supplies from a broader ban on the use of Western maritime services, but its effect on Russian oil export prices in March 2023 was negligible. JEL Classification: F51, International Conflicts, Negotiations, Sanctions, Q41, Energy: Demand and Supply, Prices, Q48, Energy: Government Policy