Russian oil trade remains in ship-shape as the EU price cap has failed to stem Moscow's freight and insurance income, analyst says

Russian oil isn't as cheap as it looks, a Kpler analyst said.

Andrey Rudakov/Bloomberg

• Russia's oil income may not have been hit by Western sanctions as badly as early data suggested, a Kpler analyst told Insider. 
• Moscow earns much more from its oil trade by providing extra services such as shipping and insurance, Viktor Katona said. 
• "The Russia, India, China triangle is getting away without using Western shipping and Western insurance," he said.

Russia's energy revenues may not have been hit as badly by Western sanctions as some preliminary estimates suggested, according to analytics firm Kpler.

That's because Moscow effectively earns much more from its oil trade than just the so-called Free on Board (FOB) cost of the commodity, Viktor Katona, an analyst at the company, told Insider.

It's all down to the way Russia sells its crude to Asian buyers such as India and China, by charging oil traders for extra services like shipping and insurance along with its crude.

Some early data indicated Russian oil was being priced at around $38 per barrel — less than half the cost of the Brent benchmark — after Europe imposed a price cap on it and banned seaborne imports, said Katona. However, Moscow's effective oil income maybe above $60 per barrel, when earnings from the associated services it provides are taken into account, he added.

"Debunking number one, no one really knows the price of Russian oil," Katona said. 

A "combination of own insurance, own shipping, and basically own trading intermediaries, ultimately [means] the end [price] that the Russian company would be getting from this transaction is not $38, but rather the $60- $65, which no one really talks about," Katona said. 

Russian oil flows have undergone major changes after the country's 2022 invasion of Ukraine led to punitive economic sanctions by the West. That forced the country to seek new buyers for its crude – leading a sharp increase in shipments to Asian countries such as India and China.

The European Union has capped the price of Russian oil at $60 a barrel, and banned vessels carrying the commodity from using western shipping and insurance services unless they agree to the cost limit. The move was aimed at crimping Moscow's energy revenues while keeping supplies of its oil flowing through global markets. 

The FOB price of around $38 per barrel only considers the cost of loading oil cargoes at at Russian port, and doesn't capture the entire chain of transactions between buyers and sellers, according to Katona. What is more relevant is the end user cost, he said, adding that the delivered price into India is roughly $25 higher than the FOB level. 

"The Indians don't deal with anything. They don't deal with shipping, they don't deal with insurance. And basically, it's the Russians doing the servicing of that cargo," he said. 

That ultimately underscores the failure of the EU price cap because it only affects the first leg of a Russian oil transaction, according to Katona.

"The price cap as such, and its ultimate failure is that it never really intended to cap the price, the end user price, which the Indians or the Chinese would be paying. It only ever kept the price in the Russian port of loading," he said.

"Pretty much what is going on is that the Russia, India, China triangle is getting away without using Western shipping and Western insurance," effectively undermining the power of the price cap, he added.

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