Title
The dynamics of evasion: The price cap on Russian crude exports and the amassing of the shadow fleet
Abstract
This paper examines the effectiveness of the price cap on Russian oil exports implemented in December 2022 by Western countries in response to Russia's invasion of Ukraine. We develop a dynamic model that accounts for Russia's incentives to build evasion capacity through a shadow fleet. Our analysis combines dynamic modeling, empirical calibration, and numerical simulation to assess the impact of the price cap compared to a complete service ban. We find that the price cap is more effective at reducing Russia's profits than a service ban would have been, despite being less radical. This is primarily due to two factors: the cap's ability to prevent oil price surges that would benefit Russia, and the reduced urgency for Russia to build evasion capacity quickly. Additionally, we find that the price cap is less detrimental to consumers than a complete ban. These results remain robust under various assumptions about global demand elasticity and discount factors, contributing new insights to the emerging literature on sanctions against Russian oil exports.