Despite US sanctions, Russia’s oil revenues have increased 50 percent per month since the beginning of 2022, according to the International Energy Agency.
From the first day of Russia's attack on Ukraine, the Western alliance imposed harsh sanctions on Moscow to cripple its global finances and force the Kremlin to stop its onslaught over Kiev.
But both global data and US officials admit that four months after the Russian offensive, Moscow’s revenues from its fossil fuels have not reduced but increased. Russia is generating significantly more revenues from its oil-gas sales than the period prior to its military action against Ukraine.
In contrast to the desires of the US and its allies, Moscow’s oil profits have climbed by 50 percent since the beginning of this year, reaching $20 billion a month, according to the International Energy Agency. Despite US sanctions, the EU still figures as one of the biggest buyers of Russian oil and gas, the data indicates.
Another hard fact for the US officials to reckon with is the Russian fossil fuels revenues showing perpetual growth, a worrying sign for Washington which wants to punish Moscow for its Ukraine offensive.
Last week, during a hearing of the US Senate Subcommittee on Europe and Regional Security Cooperation, Amos Hochstein, the US energy security tsar, found himself in an uncomfortable situation to accept that Russia is currently doing much better from its crude oil and gas exports than the pre-Ukraine armed conflict period. "I can't deny that," Hochstein said.
Why is Russia doing well?
A powerful combination of some crucial effects ranging from rising prices to Russia’s increasing sales to countries like China and India, the two countries with neutral positions toward the Ukraine conflict, explain why Russian revenues from its fossil fuels exports have recently increased.
One reason is rising global oil and gas prices due to both the Ukraine conflict and the pandemic. Whenever the level of fossil fuel supply to global markets significantly decreased, it would usually make prices increase due to the scarcity of supply.
“Russian sanctions would be put in place, potentially reducing the available oil supply in a tight market. If Russia could still sell all the oil it could produce to countries that refuse to abide by the sanctions, it might do well financially with an oil price spike,” wrote Robert Rapier, an energy expert, in February.
As a result, even though Russian exports to many Western countries have decreased, Moscow’s losses have been offsetted by increasing prices. "The volume of oil is decreasing on the world market, prices are rising," said Vladimir Putin, the Russian president, pointing out the ongoing process in global oil markets, which is favouring Moscow for now.
"Company profits are rising," said a jubilant Putin during the commemoration of Peter the Great’s 350th birthday. Peter the Great was considered as one of the greatest Russian Tsars, whom Putin wanted to emulate.
The second reason for Russia’s increasing revenues is related to its soaring sales to Asian countries like China and India, the two countries with the world’s two biggest populations. China, the world’s second biggest economy, and India, the globe’s fifth largest economy, need enormous energy sources to meet local demands.
In addition to their huge demands, both countries can also not resist Russia's discounted oil prices compared to regular market prices from other countries.
Last month, India doubled its oil purchases from Russia compared to April, reaching a record level above 840,000 barrels per day, according to commodity analysts. The Asian country’s oil imports from Russia will continue to increase in upcoming months, experts believe.
These two crucial factors show that as long as the world’s dependence on oil continues and Russia remains one of the world’s biggest oil producers, Western sanctions over Moscow will have a limited effect on the decision makers like Putin in the Kremlin.
Another energy crisis?
Beyond Western sanctions’ limited effects on Russia, they might potentially contribute to trigger a widespread energy crisis across the globe, according to Daniel Yergin, one of the world’s best oil experts, whose prize-winning book The Prize gave much insight into the historical development of fossil fuels like oil.
Yergin suspects that if the West continues to prevent Russian oil’s export to a large part of the world, it might lead to an energy upheaval in a level compared to the 1970s oil crisis, which was triggered by Arab countries’ oil embargo to punish Israel.
“There’s a grave financial risk, there’s a reputational risk and there’s the operational risk, and all those things are there as people are backing away. This is going to lead, as it did in the 1970s, to a mass scramble to rejigger logistics,” Yergin said.
Also the EU’s dependence on Russian gas might lead to some serious repercussions across the continent, whose political and military connections with Moscow have long been tense through centuries.
The EU imported around 45 percent of its gas supply from Russia prior to the Ukraine conflict. While Washington is working hard to replace Russian gas with other alternatives like the US, Australia and Qatar, the plan is not easy to implement considering long distances between Europe and those states.