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Following Russia's invasion of Ukraine, Western countries have looked forways to limit Russia's oil income. This paper considers, theoretically andquantitatively, two such options: 1) an export-quantity restriction and 2) aforced discount on Russian oil. We build a quantifiable model of the global oilmarket and analyze how each of these policies affect: which Russian oil fieldsfall out of production; the global oil supply; and the global oil price. Bythese statics we derive the effects of the policies on Russian oil profits andoil-importers' economic surplus. The effects on Russian oil profits aresubstantial. In the short run (within the first year), a quantity restrictionof 20% yields Russian losses of 62 million USD per day, equivalent to 1.2% ofGDP and 32% of military spending. In the long run (beyond a year) newinvestments become unprofitable. Losses rise to 100 million USD per day, 2% ofGDP and 56% of military spending. A price discount of 20% is even more harmfulto Russia, yielding losses of 152 million USD per day, equivalent to 3.1% ofGDP and 85% of military spending in the short run and long run. A pricediscount puts generally more burden on Russia and less on importers compared toa quantity restriction. In fact, a price discount implies net gains for oilimporters as it essentially redistributes oil rents from Russia to importers.If the restrictions are expected to last for long, the burden on oil importersdecreases. Overall, both policies at all levels imply larger relative lossesfor Russia than for oil importers (in shares of their GDP). The case for aprice discount on Russian oil is thus strong. However, Russia may choose not toexport at the discounted price, in which case the price-discount sanctionbecomes a de facto supply restriction.

Quantity restrictions and price discounts on Russian oil