The Price of Isolation: Sanctions, Supply Shocks, and Price Discovery Dynamics in Russia's Crude Oil Market

Oxana Wieland ()
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Oxana Wieland: Department of Business, University of Minnesota Crookston, Crookston, Minnesota, USA

International Journal of Energy Economics and Policy, 2026, vol. 16, issue 4, 39-46

Abstract: This study examines how intensifying Western sanctions, Central Bank of Russia (CBR) monetary tightening, and OPEC+ supply management reshaped price discovery dynamics in Russia's crude oil market during 2025-2026. Applying a noise-robust information share (IS) framework to a six-factor Russian-centric panel (CBR Key Rate, RUB/USD exchange rate, OPEC+ supply, Geopolitical Risk Index, Sanctions Proxy, and AI CapEx Index) across 63 weekly observations, we find that price discovery has become internally isolated from global commodity benchmarks. The Sanctions Proxy dominates information shares (22.4%), followed by OPEC+ supply (19.8%), RUB/USD exchange rate (17.3%), and CBR Key Rate (14.7%). A stark absorption asymmetry emerges: OPEC+ quota decisions are priced within 3.8 trading days, whereas sanctions enforcement shocks persist for 14.7 days. IV/GMM noise-robust bias correction reveals a +63.7% OLS underestimate for the Sanctions Proxy, confirming that standard models systematically misattribute shadow fleet friction costs as informational absence. Shadow fleet logistics costs reached $773 million (6.7-8.1% of cargo value) in early 2026. The Urals-Brent discount is projected at $22/bbl for Q2 2026, reflecting a structural isolation premium that implies annual revenue losses of $7-12 billion. Policy implications highlight benchmark standardisation, intensified OPEC+ engagement, and accelerated technology import substitution as priority responses.

Keywords: Price Discovery; Information Share; Sanctions; Central Bank of Russia Key Rate; Russian Oil Exports; OPEC+; Regime Switching; Price Cap; IV/GMM (search for similar items in EconPapers)
Date: 2026
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DOI: 10.32479/ijeep.23744

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