Tsoncho Ganev, 27 February 2023, Facebook:
“Oil sanctions against Russia are a complete failure! Russia is selling 25% above the price cap imposed by the EU! You see who is acknowledging that? American media.”
A Facebook post by Tsoncho Ganev, deputy chairman of the Vazrazhdane party, claims that international sanctions against Russian oil have failed. Ganev’s claim is based solely on the titles of two articles published by American media over the past month. The post has been shared by over 30 Facebook groups and individual profiles and has reached at least 20 000 users.
Factcheck.bg examined the facts around Ganev’s claim.
The arguments used by Tsoncho Ganev to support his claim are a classic example of biased selection of information in support of a predetermined conclusion, while ignoring a large amount of data that refutes that conclusion. It is a logical fallacy known as cherry picking – a conclusion based on a small selection of favourable evidence.
In this particular case the evidence includes comments by independent experts and not by the media, as Ganev erroneously asserts. The comments refer to different aspects of the issue and they reach different conclusions. In fact, when examined in full, those sources also include evidence that sanctions are working. Nevertheless, their titles are used in support of the claim that sanctions are not working.
What does the expert quoted by CNSC actually say
The title of the CNBC article is „Sanctions on Russian crude oil have ‘failed completely,’ oil analyst says.” It is a summary of a segment on the business programme Street Signs Asia, which airs from Singapore. In its 2 February edition independent analyst Paul Sankey was interviewed by video link and asked to comment on the current state of global oil and gas markets and the energy situation in Europe. The video with his full interview is featured in the article and its entire content is available to view. The title of the video is “Oil market looks like it’s in ‘pretty good shape, analyst says’ and in his brief mention of the sanctions on Russia Sankey says the following:
„What’s been tough in the oil markets – further to the bearish side of the market – is that Russian oil supply really hasn’t been interrupted, they’ve sustained exports at high levels. In fact I have it from a great source that the Saudis have been asking around how come Russian oil is still flowing. That begs the question what happens with the sanctions coming up on oil products. It doesn’t seem to work.”
Paul Sankey, who is a competent analyst of oil markets, seems to think that the supply of Russian oil at relatively low prices is a sign of sanctions not working. That opinion, however, demonstrates a misunderstanding of the purpose of the current sanctions on Russia. The real goal of the measures imposed by the EU, G-7 and Australia never involved cutting off the access of Russian oil to global markets.
The sanctions aim to diminish Russia’s capacity to finance its war machine by reducing its revenues from oil and other fuels. At the same time sanctioning countries seek to ensure a stable supply of energy resources on the global markets. The idea behind the price cap is to allow opportunities for trade in Russian oil to continue without risking prices spiralling out of control.
In that sense the situation described by Paul Sankey, with the market in good shape and the oil ‘still flowing,’ should rather be seen as a success for the sanctions.
What did researchers quoted by Bloomberg find
The Bloomberg article was published on 24 February under the title “Russia Sold Oil Far Above Price Cap, Researchers Say”. It presents the findings of a team of researchers from various universities among which Columbia University, the University of California and IE Business School in Spain.
Using customs data from Russian ports, they assessed the effect of the oil sanctions including the EU embargo and the price cap imposed by the G-7 and Australia. One of the main findings in the report is that in the first four weeks after the price cap entered into force, Russia managed to sell oil at prices above the threshold on some markets. Here are some of the conclusions the researchers present in their summary results:
- When sanctions entered into force, Russia was able to redirect crude oil exports from Europe to alternative markets such as India, China, and Turkey with no loss of volumes, albeit at the cost of accepting discounts in a subset of markets where the EU embargo has dramatically lowered demand. This curbed Russian oil export revenues in
2022, which would have been considerably larger without discounts.
- Crude oil discounts on some markets were not as high as those reflected in Urals prices. The average export price for Russian crude oil stood at $74 per barrel, compared to Urals prices at $52 per barrel. This was mostly observed at Pacific Ocean ports, where many of the deliveries to China ship from.
- Redirecting its oil product exports from the EU to alternative markets may prove difficult for Russia. The sanctions may force it to export crude oil at discount prices to India and Turkey, to be processed at their refineries and then sold to countries upholding the embargo. That would mean losses for Russia because of the lower export prices as well as the lost added value that would otherwise have been produced by Russian refineries.
The researchers also say their findings do not imply that sanctions on Russia should be abolished but only that they should be enforced more strictly. They also call for lowering the price cap to $35 per barrel as the first weeks post sanctions have shown that despite its threats Russia is unlikely to cut production and supply, and is willing to accept lower prices on some of its shipments.
Lower prices and continued supply are signs that sanctions are working
Sanctions have led to a substantial drop in Russian oil prices. After soaring above $100 in June last year, they stabilised at values below the $60 price cap after the sanctions kicked in. Compared to January 2022 the price reduction is over 40%. The gap between Brent and Urals prices, which widened after the invasion of Ukraine, is now reaching record levels of over $30 per barrels.
Official data published by the Russian Ministry of Finance show that budget revenues from oil sales dropped to their lowest level since March 2021. Slashing that revenue was the main goal behind the oil sanctions. According to the International Energy Agency oil and gas revenues constituted 45% of Russia’s federal budget in January 2022. The hole in the budget that opened as a result of sanctions has forced Russia to impose additional taxes on its oil and gas industry in an attempt to compensate for losses. The tax hike in the interval 2023-2025 will amount to over $60 billion and is the biggest in the country’s history.
Russia did not cut its oil production and exports. According to many analysts that was the biggest risk associated with the sanctions. Some forecasts were predicting the EU embargo could lower Russian oil exports by 3 to 5 million barrels per day, which would have caused a significant rise in oil prices. The introduction of the price cap has so far helped to avert that scenario.
Tsoncho Ganev’s claim that sanctions on Russian oil are failing is misleading. It is based solely on the titles of two media articles and deliberately ignores all evidence that international sanctions are having an effect, even the evidence mentioned in the articles themselves. Russian oil prices are substantially lower compared to the same period last year. Russian authorities admit that their budget revenues from oil have been reduced. Oil markets remain relatively stable, with no supply issues and no price spikes.