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Loss of the Russian warlike economy.
- ssoni43
- Feb 23, 2023
- 4 min read
Updated: Mar 2, 2023
Since Russia invaded Ukraine a year or so ago, many countries around the world have stopped or reduced oil and gas imports from Moscow to cut Russian revenues and weaken its war effort. European Union nations that import energy from Russia have stopped buying oil by sea. The ban on Russian crude oil products came into effect on February 5. The US said last March that it would stop importing Russian oil. The ban on imports of Russian crude oil and refined products into Britain came into effect on December 5. Russia's gas sector has also been targeted for sanctions. The European Union signaled in March that it would cut Russian gas imports by two-thirds in a year. Britain used to import a small amount of gas from Russia and now it has also stopped importing, but the story does not stop here. Western countries have frozen the Russian central bank's foreign currency reserves of $324 billion to reduce the financial power of Russian President Vladimir Putin. Moscow has also been deprived of Western know-how and products by stopping almost all technology transfers and high-quality goods and services. Never before have such severe sanctions been imposed against a nuclear-powered country on the UN Security Council like Russia. Russia is among the top three oil and gas producing countries in the world. The other two countries are Saudi Arabia and America. According to the European statistics agency Eurosat, in 2020 Russia supplied the European Union with 25 percent of its oil and 40 percent of its gas needs. When Russia attacked Ukraine in February 2022, it was difficult for the European Union to immediately cut all economic ties with Russia. The European Union had to continue buying oil from Russia. According to the Center for Research on Energy and Clean Air (CREA), since the first day of the invasion of Ukraine, the European Union has paid more than $146 billion in gas and oil purchases in Russia. The restrictions were imposed in stages, but Putin had long been preparing for the prospect of an economic confrontation with the West. Putin has been preparing for an economic war since the initial invasion of Ukraine in 2014 and sanctions imposed on Moscow following the annexation of Crimea. His highly acclaimed economic team has made the country an economy ready to weather any storm. Over the past eight years, Russia has been accumulating large foreign exchange reserves. It sold more fossil fuels than ever before and built more pipelines with the proceeds. Moscow has also invested in Western technology, mining, and critical infrastructure such as gas storage facilities and oil refineries in the European Union. A full embargo was not imposed, prices continued to rise, and as oil continued to flow, Russia made billions selling fossil fuels in Europe. In addition, Russia weaponized gas by cutting deliveries to Europe by 80 percent, but Putin's tactic proved short-term profitable. Most economists agree that this tactic is unsustainable as a long-term strategy, with a ceiling on oil prices that came into effect on December 5 alongside the European embargo still unused, as Russian Urals oil has been cheap since then. The value of the Urals has fallen since the European Union banned the import of Russian oil by sea and is currently exported at $50 a barrel. According to the CREA study, the ban is costing Moscow $175 million a day in fossil fuel exports, but Russia has found new customers for its fuel. After the Russian invasion, gas and oil prices have increased and exports to Asia have declined. So the drop in Russian fuel sales to Europe in 2022 has no impact on Kremlin revenues. According to experts, the full effect of the sanctions against Russia will be seen in the long term. However, the International Monetary Fund's World Economic Outlook report released in the end of January shows that Russia's economy appears to be stronger than previously expected. The agency believes that Russia will grow at a rate of 0.3 percent this year, an improvement from a contraction of -2.2 percent in 2022. The International Monetary Fund last October predicted that Russia's economy would contract by -2.3 percent in 2023, but the above figure is much higher than that. Given the current G-seven ceiling on oil prices, Russia's crude oil exports are unlikely to decline, as Russia is trading with countries that have not banned it. Massive government spending on military maintenance and the invasion of Ukraine is also believed to have helped Russia maintain economic activity during the war. Russia is becoming a formidable force in the global energy market. Opposing such an important player is not easy and it is not going to happen in a day. In fact, the International Monetary Fund has warned that Western sanctions on Moscow have so far had no effect.
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