The International Energy Agency reported a 40% year-on-year decrease in Russian oil and gas export revenue in January, with a $11.5 billion decline from January 2022. The reduction follows the EU’s seaborne oil import ban and price cap, which took effect in December. Still, the extent of discounts on Russian energy exports remains uncertain amidst reports of a ‘shadow fleet’ of oil tankers avoiding Western sanctions and price controls. Approximately six hundred vessels, comprising 10% of the world’s large tankers, appear involved in trading schemes to avoid either the sanctions or the price cap, which limits the price of Russian oil that can be carried on ships with western insurance. The ships are largely registered to Middle Eastern and Asian firms not previously involved in the tanker market, though they include some believed to be used in skirting sanctions against Iran and Venezuela.

Why it matters: Western policymakers have described energy-related sanctions and the oil price cap as key tool sin changing Moscow’s behavior. Yet it is unclear to what extent the sanctions and the price cap have yet produced the pain policymakers appeared to expect. Existing measures have not prevented record shipments to China, India, and Turkey. Some research suggests that sanctions and the price cap have had little impact on export prices from Russia’s Pacific Ocean ports and might be unable to do so. Other work argues that some Russian energy companies (especially those with refining facilities in Europe) successfully gamed Western policies during much of 2022, at the expense of Russia’s federal budget and European consumers. The U.S. and its allies have not made any public moves to curtail the activity of the shadow fleet aiding Russia and might find it difficult to do so. But risks remain that the rapidly expanding Hong Kong and Dubai-based shipping companies may be connected to Russian business interests, such as the recently sanctioned Sun Ship Management. Like past sanctions targeting other nations, Russia-focused energy sanctions have rapidly evolved into “whack-a-mole” policies that require substantial continuous effort to enforce.

On March 1, Sri Lanka’s government announced its intent to explore cooperating with Russia to build on-shore or off-shore small modular reactors with a power capacity of up to 100MW per unit to ease an energy crisis that has contributed to the country’s worst economic crisis in 70 years. Rosatom’s successful proposal offers to build the reactors, train Sri Lankan technicians, and to take back and reprocess waste. In parallel, Sri Lanka’s government is working with the International Atomic Energy Agency. The agreed proposal follows an EU decision to scratch plans to sanction Russia’s nuclear sector.

Why it matters: Russia’s nuclear industry has thus far largely avoided disruptions that have afflicted its fossil fuel industries, partly because of the EU’s reliance on Russian nuclear materials and technology. Eighteen of the EU’s nuclear reactors are Russian built. Since Russia’s invasion of Ukraine, Finland has cancelled a contract with Russia to build a new nuclear plant, though both Bulgaria and Hungary appear to be continuing with similar plans. Russian nuclear reactors generate 37% and 42% of electricity in Bulgaria and Hungary, respectively. Both European and American next-generation reactors will rely upon high-assay low-enriched uranium (HALEU), currently available only from Russia. European and American enrichment plants are still multiple years from meeting expected Western demand.

As a rapidly developing region, and one less troubled by Russia’s invasion of Ukraine than the West, Asia is becoming an increasingly substantial market for not only Russian oil and gas, but also Russian nuclear energy. In addition to its Sri Lanka plans, Rosatom signed a nuclear power deal with Myanmar in February, and has existing cooperation agreements with Vietnam, Indonesia, and Bangladesh, among others. Despite diplomatic pressure from the West, Russia continues to play the cards it holds to promote its economic and geopolitical interests.

The Biden Administration officially announced a new series of tariffs to curtail American imports of Russian metals, after contemplating potential action at the start of 2023. Effective March 10th, a 200% tariff on imports of Russian aluminum will commence, followed by an April 10th, tariff on imports containing Russian aluminum from other countries. A 70% Russian copper and lead tariff, and a separate 35% nickel tariff, will also be imposed. The Aluminum Association, the largest aluminum trade association in the U.S., supports the measure. The measures are expected to curtail direct Russian shipments of the affected metals to the U.S. by making the Russian materials commercially unattractive, but it’s unclear how the U.S. will coordinate with other countries regarding imports of Russian aluminum derivative products.

Why it matters: The Biden Administration has prioritized limiting Russian export revenue from high value industries, and U.S. companies are in a more favorable position to manage possible market disruptions than when the U.S. imposed an aluminum tariff in 2018. While Russia was the commodity’s fifth largest supplier to the U.S. in 2022, it has gradually lost market share to other exporters like Australia, and aluminum imports are overall dominated by Canada. Rusal, Russia’s only aluminum producer, accounts for 5% of global aluminum output and already faces an Australian ban barring alumina exports to Russia. Nevertheless, Russia’s larger export shift to Asian markets and the unilateral nature of the tariffs seem likely to limit the policy’s real impact on Russian earnings. By 2020, Russia’s top aluminum export destinations already included Turkey, Japan, and South Korea; Russian firms have redirected many other exports away from the United States and the European Union. There is no immediate indication that Rusal or other Russian metals companies will lose access to the London Metal Exchange (owned by Hong Kong’s HKEX exchange), a leading global metals market.

Russian exports of diesel and related oil products have increased to North African states. Morocco, Algeria, Tunisia, and Egypt have all increased their intake of Russian diesel, particularly in the last few months in the lead-up to the EU’s embargo on Russian oil products. While Egypt, Tunisia, and Morocco have grappled with fuel price hikes in recent months, the countries are expected to re-export some of the oil products to Europe.

Why it matters: The EU’s February diesel and oil products ban will likely prove difficult for both Russia and the EU, as the two scramble to find new buyers and sellers, respectively. Diesel represented 50% of total oil product exports for Russia in 2022, and monthly exports have remained stable since the invasion of Ukraine. Before Russia’s invasion of Ukraine, Europe imported 61% of Russian diesel as well as close to 43% of fuel oil and 39% of gasoline, according to a recent study. Russian diesel comprised 27% of Europe’s diesel imports in January 2023; the fuel powers over 86% of vans and 96% of trucks. Preparing for a possible ban, Russia discounted export rates for ‘growing’ trade partners, such as India, to keep exports flowing, and a similar pattern may be unfolding in North Africa and the Middle East. The EU may turn a blind eye to the re-exportation of Russian diesel until it can find suitable alternative sources.