Publication Category: Energy

This paper explores the design and impact of the price cap on Russian oil, implemented by the G7 and other coalition members. Unlike typical price caps, which tend to reduce supply by discouraging production, this cap targets only Russian oil revenues, by design allowing the oil to reach the global market and keeping the global oil prices competitive. The cap is meant to weaken Russia’s financial ability to sustain the war in Ukraine by limiting its oil revenue and simultaneously negatively affecting ruble exchange rate. The cap also allows, by design, non-coalition countries like China and India to continue purchasing Russian oil. This way, it limits Russian foreign revenues without inducing oil price shocks. Challenges include potential fraud in compliance declarations (providers buying oil over the cap due to falsified information).

Early results in 2023 show a 49% drop (relative to March-November 2022) in Russian oil-related revenues from the prior year, while oil production remained unaffected (it even increased), and global oil prices did not surge, suggesting the cap’s efficiency in achieving its goals. Approximately 60% of energy shipments and 75% of product shipments from Russia were still processed by the EU, G7, and Norway. The study also mentioned potential longer-run issues, such as a decreasing impact over time, as the credibility of lowering the cap has decreased, and adjustments to the Russian tax system to increase government revenue from oil sales.

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Using a detailed, transaction-level dataset on Russia’s energy exports in the first quarter of 2023, the paper examines how sanctions imposed by the European Union (EU), the G7, and other allies have affected Russia’s trade in crude oil and refined products. The authors pay special attention to the dual policy measures introduced at the end of 2022: the EU ban on seaborne Russian oil and the complementary G7 price cap. Their central question is whether these constraints have simultaneously maintained global oil supply stability and curbed the Kremlin’s revenue streams.

The analysis confirms a marked shift in Russia’s export markets and pricing structure. Whereas Europe once dominated as Russia’s primary buyer of crude, its imports have plummeted. India and China emerged as the biggest new customers of Russian oil, now accounting for the bulk of Moscow’s exports. While rerouting to Asia has largely prevented the feared surge in global oil prices, Russia’s overall export earnings and fiscal inflows from energy have fallen significantly.

One finding is that Russia’s Baltic and Black Sea crude shipments now sell at a deep discount, sometimes exceeding 25 dollars per barrel below global benchmarks. This reflects the abrupt exit of European customers and the increased bargaining power of alternative buyers. By contrast, the Pacific Ocean export channel—historically aimed at China—displays narrower discounts, indicating a more stable customer base and limited unoccupied transport capacity.

Beyond shifts in volumes and buyers, the paper uncovers considerable discrepancies among different oil products. Diesel exports, for instance, still fetch a higher price relative to some of Russia’s heavier fuel oils, partly owing to strong global diesel demand. Yet as the European ban on refined products began in early 2023, the authors note rising shipments to Turkey and other emerging re-export hubs, suggesting attempts to maintain flows of Russian oil products into the global market.

Crucially, the data also reveal potential breaches of the price cap regime. The authors find that large volumes are still traded above the 60-dollar threshold, especially via Russia’s Pacific ports. Some cargoes rely on European or G7-owned or -insured vessels, which in principle should be disallowed for deals above the cap. Thus, while the strategy of keeping Russian oil in circulation while reducing Russian oil revenues has had some successes, illustrated by falling Russian energy revenue, stepped-up enforcement is needed to address gaps in compliance.

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The shockwaves of the Russia–Ukraine war were sent through global energy markets, creating stark contrasts between nations that benefited and those that suffered economic setbacks. As energy prices surged, fossil fuel exporters found themselves in an advantageous position, while energy-importing economies struggled with inflation, rising costs, and economic downturns. The study explores how these shifts reshaped global trade, investment patterns, and economic stability, underscoring the profound role of energy in geopolitical strategy.

For oil and gas producers, the crisis was an economic boon. The Middle East, Southeast Asia, Canada, Australia, and Latin America saw export volumes increase, with Southeast Asia experiencing a staggering 57.92% increase and the Middle East close behind at 38.47%. Rising revenues fueled economic growth, boosting GDP and household incomes. However, the benefits were not evenly distributed—while energy-rich countries prospered, their investment landscapes shifted. Despite growing revenues, domestic investments in regions like Mexico, Africa, and parts of Latin America stagnated, as global uncertainty and higher operating costs took their toll.

In contrast, energy-dependent nations found themselves at a disadvantage. The European Union, China, Japan, South Korea, and non-oil-producing Middle Eastern countries faced mounting economic pressure. South Korea’s GDP contracted by nearly 4%, while Africa and non-oil-producing Middle Eastern nations saw declines of 3.06% and 2.52%, respectively. Even among wealthier nations, the impact varied—while the United States and the United Kingdom managed to limit their losses, the European Union struggled with surging energy costs and supply chain challenges.

These price shocks impacted investment patterns worldwide. Countries like the United States, the European Union, and the Middle Eastern oil producers saw capital flow into energy infrastructure, while Russia, Australia, Latin America, and Canada experienced slower investment growth. Global trade also adjusted, with import demand rising sharply in Canada, Japan, and China, while Russia and Southeast Asia saw declines.

The war’s economic impact extended far beyond GDP figures, deeply affecting social welfare. Energy-exporting nations reaped enormous financial gains—Middle Eastern oil producers saw welfare gains of $337.85 billion, while Australia and Latin America recorded increases of $182.85 billion and $1.26 trillion, respectively. On the losing side, China faced an unprecedented $3.77 trillion in welfare losses, the European Union followed with $2.93 trillion, and Japan lost $1.79 trillion. The United States, South Korea, and South Asia also endured significant declines, highlighting how the crisis widened global economic disparities.

Russia’s economic trajectory was marked by both severe losses and surprising resilience. Western sanctions dealt a heavy blow, leading to a 5.5% GDP contraction, a 4% drop in household income, and a 6% decline in domestic investment by mid-2022. However, despite these challenges, Russia managed to partially counteract the effects of sanctions through continued energy exports to China and India. In the first 100 days of the conflict, Russian energy revenues surged by €93 billion, a paradoxical outcome driven by Europe’s lingering dependence on Russian fuel and the ability to accept payments in alternative currencies.

Looking ahead, the study emphasizes the urgency of energy diversification. The crisis has reinforced the need for nations to secure stable energy supplies, reduce reliance on volatile markets, and invest in cleaner, low-carbon technologies. As countries pivot toward renewables, hydrogen energy, and advanced grid infrastructure, the long-term effects of this geopolitical energy shift will shape the global economy for years to come. Whether these adjustments lead to greater energy security or further instability remains an open question.

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Russia–Ukraine war and the resulting sanctions have added new layers of complexity to the interconnectedness of energy and agricultural markets. This study explores how restrictions on Russian energy exports have influenced volatility spillovers between energy commodities like oil and gas and agricultural products such as wheat and corn. The key question it investigates is whether geopolitical uncertainty, exacerbated by the conflict and sanctions, has intensified these financial linkages and how access to information plays a role in moderating these effects.

By employing a time-varying-parameter vector-autoregressive (TVP-VAR) framework, the study tracks how energy–agriculture spillovers evolve from the pre-invasion baseline into the wartime period, marking the sharp jumps that coincide with the major rounds of Western energy sanctions. The findings reveal that volatility spillovers between energy and agricultural markets increased substantially in response to disruptions in global energy supplies. While not tested directly, the paper argues conceptually that energy is a key farm input, which means that rising fuel costs may amplify price instability across both sectors. The study also introduces Google Trends data as a proxy for public uncertainty, showing that heightened concerns about the war led to stronger market fluctuations. However, greater availability of geopolitical risk information was found to mitigate these effects, suggesting that transparency and accurate reporting can help stabilize markets during crises.

The research also highlights how specific geopolitical events triggered spikes in market volatility. Announcements of new sanctions by G7 nations and the EU correlated with sharp increases in energy-agriculture spillovers, underscoring the direct impact of policy decisions on commodity markets. The findings suggest that while sanctions serve as a tool for economic pressure, their unintended consequences must be managed carefully.

The authors stress that a free, prompt and accurate flow of geopolitical information is vital for dampening the extra volatility that conflict-driven uncertainty injects into energy and food markets. This calls for policies that both promote timely disclosure and punish misinformation, while warning investors and regulators to exercise special caution during sanction episodes, when cross-market spillovers become most pronounced.

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The study examines the impact of the Russia–Ukraine war on energy prices across OECD countries, highlighting how geopolitical instability has driven up costs, particularly in Europe. The findings indicate that energy prices in OECD countries increased by 9% due to the war, with Southern Europe experiencing the highest surge at 22%. In contrast, non-EU and non-NATO countries saw little to no effect, suggesting that geopolitical alliances played a role in determining the extent of price fluctuations.

The war disrupted global energy supply chains, particularly affecting nations heavily dependent on Russian exports. Sanctions and embargoes reduced the availability of Russian fossil fuels, forcing European countries to seek alternative suppliers at higher costs. The study also suggests that uncertainty and geopolitical risks further fueled demand, as markets responded to the possibility of prolonged instability. Additionally, the rerouting of Russian energy exports to alternative markets, including India and African nations, led to higher transaction costs, further exacerbating price increases.

The study concludes that the war has had a lasting impact on global energy markets, particularly in Europe, and underscores the importance of reassessing energy dependence on Russia. The findings suggest that continued geopolitical instability could sustain elevated energy prices in the foreseeable future. Looking ahead, the global energy transition will likely accelerate, with increased investment in low-carbon technologies such as hydrogen and photovoltaic energy. Policymakers and investors are encouraged to prioritize infrastructure that supports the long-term shift toward cleaner energy sources, reinforcing the general movement toward energy security and sustainability.

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The study analyzes how the Russia-Ukraine war has altered global energy price dynamics, focusing on shifts across three key periods: pre-pandemic, during the pandemic, and the combined effects of both the pandemic and war. By examining these phases, the study reveals significant changes in how different energy prices interact, particularly highlighting a decline in the correlation between crude oil and refined products following the outbreak of the war.

One of the key findings is that the war produced a sharp but mostly short-lived decoupling of the historical price relationships within energy markets. While crude oil and refined products, such as diesel, previously moved in close alignment, their co-movement weakened significantly post-invasion. European diesel prices were particularly affected, experiencing more volatility compared to their U.S. counterparts. This divergence suggests that the war had a more profound impact on the European energy market, where supply chain disruptions and shifting trade routes played a greater role in reshaping price structures.

Importantly, this decoupling did not play out uniformly across all fuels. Gasoline showed only slight evidence of contagion from Brent crude, and cross-correlations between natural gas and Brent remained weak and largely unchanged throughout.

Beyond immediate price changes, the study shows the structural transformation of global energy markets, though one characterized by a pronounced peak detachment with a bounceback rather than a uniform permanent change. The sanctions on Russian energy exports and the resulting shifts in trade patterns may have introduced new complexities, with long-term consequences for energy pricing and market stability, though the channels of the effect are not tested empirically. 

The study concludes that, although energy markets have historically shown strong co-movements between crude oil and its derivatives, the war introduced a temporary shift in these relationships. As geopolitical instability persists, energy prices may remain prone to sudden dislocations, but traditional correlation patterns have at least partially reasserted themselves. The research underscores the need for policymakers and market participants to recognize that price correlations can change sharply in the wake of large shocks.

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The paper explores the economic impact of sanctions imposed by sanctioning states on their energy industries. 

Sanctions initially led to a short-term increase in energy stock returns for energy firms in sanctioning countries, particularly in NATO member states and flawed democracies, compared to non-NATO states and fully democratic countries. However, this positive effect diminishes over time as market participants and firms adapt to the new conditions. This adjustment can arise from a variety of factors, such as businesses’ modifying their operations, supply chains and alliances to lessen the effects of sanctions, or investors’ reassessing their expectations in accordance with the evolving geopolitical situation.

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The paper examines how the Russia–Ukraine war disrupted energy imports and electricity generation in Germany and the United Kingdom. Both countries responded to the loss of Russian oil and gas by diversifying their supply sources, with Germany turning to imports from the United States, Norway, and others, while the UK increased imports from the United States and boosted its natural gas exports to Belgium and the Netherlands. Both countries successfully replaced Russian energy supplies, but Germany’s increased coal dependence slowed its energy transition, while the UK maintained progress by focusing on renewables.

In Germany, the adjustment forced a short-term return to coal due to reduced natural gas imports and the pre-war decision to decommission nuclear plants. Renewable energy, particularly solar, saw limited growth, with significant impacts expected only in the medium to long term as energy infrastructure develops. The UK, in contrast, avoided reactivating coal plants and expanded wind energy generation, driven by favorable weather and new capacity installations. Wind power became the UK’s second-largest electricity source, highlighting its continued commitment to renewable energy during the crisis.

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Global energy markets rarely remain untouched by geopolitical conflicts, and the sanctions imposed on Russia in response to the war in Ukraine have reinforced this pattern. The study examines how those sanctions affected the energy sector by tracking daily stock-return reactions for nearly a million observations of energy firms in 57 countries. Renewable energy firms consistently delivered stronger returns than their fossil-fuel peers after the sanctions were imposed, indicating a shift in investment priorities toward cleaner energy sources.

One of the study’s key findings is that energy stock returns increased in countries highly dependent on imported oil, contradicting fears of major energy security risks for sanctioning nations. Throughout the post-sanction window, renewable firms outperformed their fossil-fuel counterparts, reflecting growing investor confidence in sustainable energy businesses. Rather than reinforcing dependence on fossil fuels, the crisis may have nudged many economies to treat renewables as a longer-term hedge against supply shocks.

In the long term, the study suggests that sanctions could provoke structural changes shaping the global energy landscape. With heightened geopolitical uncertainty, nations are increasingly focused on diversifying their energy portfolios, channeling investments into renewables and energy infrastructure. While fossil fuels still dominate the energy mix, the financial appeal of renewables has grown stronger, particularly as nations seek to insulate themselves from supply setbacks.

The findings also raise important policy considerations. The study highlights that countries with more diversified energy portfolios may be better equipped to handle energy shocks, suggesting the importance of balancing security, sustainability, and affordability in long-term energy strategies. The study also points to the possible strategic role of nuclear energy, which, alongside renewables, could play a crucial role in reducing dependency on volatile fossil fuel markets.

In the long run, the war and its associated sanctions have not only changed energy trade patterns but also possibly accelerated the clean-energy transition by making renewables financially more attractive. While the geopolitical landscape remains unsettled, the momentum behind renewables appears stronger than before, signaling a transformation that may extend far beyond the current crisis.

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Energy reports

Scenario analysis of the economic and social consequences of energy sanctions between the European Union and Russia. Consequences have been profound, causing heavy losses on both sides, though Russia is hit hardest. As geopolitical tensions escalated, the EU moved to reduce its reliance on Russian energy, triggering a sharp restructuring of trade flows, inflationary pressures, and economic instability. Using a global multi-region comparative static CGE model, the study examines the extent of these disruptions, revealing that a full energy trade ban could result in a 2.895% drop in global GDP. The European Union faces a contraction between 0.099% and 1.488%, while Russia’s economy could shrink by up to 4.8%. The total loss in global welfare is projected to reach $40,860.18 million, underlining the widespread impact.

The shift in energy trade is dramatic. With Russia excluded from European markets, the EU turns to alternative suppliers, including the United States and OPEC countries, though at higher costs and logistical difficulties. Meanwhile, Russia pivots toward China and India, but these new trade flows fail to fully offset the decline in European demand. Sanctions also fuel inflation, particularly in the EU, where electricity prices have surged by as much as 10.12%, straining households and businesses alike. Russia, while experiencing a drop in domestic energy prices, faces an economic downturn driven by the collapse of trade revenues.

The energy crisis also reshapes industrial output and social welfare. The EU’s energy-intensive sectors suffer, while a growing reliance on coal threatens its climate policies. In Russia, restricted exports lead to an increase in domestic industrial production, particularly in energy-intensive manufacturing, as the country redirects its resources inward. Despite these shifts, neither side escapes unscathed. The study suggests that rather than weakening only one party, the sanctions have fractured economic stability on both sides, forcing a costly and uncertain reconfiguration of global energy markets. While Russia seeks new buyers and the EU scrambles for supply alternatives, the long-term effects of this energy standoff will continue unfolding far beyond the immediate conflict.

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