What impact have Western sanctions had on the Russian economy one year after the start of the invasion of Ukraine?

Since Russia invaded Ukraine Nearly a year ago, many countries pledged to end or restrict their oil and gas imports to reduce Moscow’s revenue and weaken its war effort.

The nations of the European Union, which were among the main importers of Russian energy, ended their purchases of oil brought in by sea.

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And on February 5, a ban on products derived from Russian crude went into effect.

The United States for its part said last March that it would stop importing Russian oil, and a ban on Russian crude oil and refined products came into force in the United Kingdom on December 5.

The Western Allies also approved an oil price ceiling in December with the aim of prevent Russia from getting more than $60 a barrel of crude.

Russia’s gas sector has also been targeted by sanctions. The EU signaled in March that it would cut Russian gas imports by two-thirds within a year.

The UK, which only imported small amounts of Russian gas, has now stopped these imports.

But there has been more.

To neutralize President Putin’s funds, the West froze some US$324 billion of the foreign exchange reserves of the Central Bank of Russia.

It also deprived Moscow of Western knowledge and products, blocking almost all technology transfers and sales of high-quality goods and services.

Never before have such complex sanctions been used against a player as important as Russia, a nuclear power with a seat on the UN Security Council.

But have these sanctions been effective in reducing Moscow’s revenue?

A ban on Russian petroleum products went into effect on February 5. (GETTY IMAGES).

The impact

Russia is one of the world’s top three oil and gas producers, along with Saudi Arabia and the United States.

In 2020, Russia supplied about 25% of the oil and more than 40% of all the gas consumed by the EU, according to Eurostat, the European statistics agency.

By the time Putin invaded Ukraine in February 2022, it was impossible for the EU to sever all economic ties with Russia instantly.

The bloc continued to provide income to Moscow with the purchase of fuel.

According to the Center for Research on Energy and Clean Air (CREA), since the first day of the invasion of Ukraine, the EU has paid Moscow more than $146 billion for its oil and gas.

As Alexey Kalmykov of the BBC Russian Service explains, the sanctions have been gradual, with big exceptions, as the West has tried to navigate uncharted territory.

But Putin had long been preparing for the possibility of an economic showdown with the West.

Putin had long been preparing for Western sanctions. (GETTY IMAGES).

“President Putin has been preparing for this economic war since sanctions were imposed on it in 2014, after its initial attack on Ukraine and the annexation of Crimea,” Kalmykov notes.

“Its highly praised economics team has even earned the country the nickname ‘Russian Fortress,’ an economy ready to weather any storm.”

Over the past eight years, Russia has been accumulating huge foreign exchange reserves. He sold more fossil fuels than ever before and used the proceeds to build even more pipelines.

It also invested in Western technology, assets and critical infrastructure such as gas storage facilities and oil refineries in the EU.

“Since there was no total embargo, while prices soared and oil continued to flow, Russia continued to earn billions selling fossil fuels to Europe,” the BBC journalist points out.

“The Kremlin has also weaponized gas by cutting deliveries to Europe by 80%.”

“But as profitable as Putin’s tactics turn out to be in the short term, most economists agree that it is hardly sustainable as a long-term strategy,” Kalmykov says.

The ceiling on the price of oil that came into effect on December 5, together with the European embargo, has not yet been used, since Russian Ural oil has been cheaper ever since.

The Ural, whose value has fallen since the EU banned imports of Russian oil by sea, is exported currently at around US$50 a barrel.

According to a CREA study, Moscow is losing about $175 million a day in fossil fuel exports due to sanctions.

But Russia has found new customers for its fuels.

new buyers

Last year, Moscow was able to redirect its significant oil exports to Asia.

His new clients are mainly China, India and Turkey, who have been buying Russian crude at deep discountsat a price significantly lower than the world benchmark Brent crude.

As the BBC’s Reality Check team explains, since the Russian invasion began, India, China and Turkey have increased their purchases of Russian oil in 2022, and together they now account for 70% of all Russian seaborne crude flows.

As of early 2022, Russia supplied less than 2% of India’s oil imports, but is now on track to become India’s largest single supplier.

Chinese imports of Russian oil fluctuate, but have also increased over the past year.

In January, at least 5.1 million tons of Ural crude were transported to Asia. (GETTY IMAGES).

The Refinitiv Eikon financial analysis platform indicates that in January at least 5.1 million tons of Ural crude were transported from the ports of Primorsk, Ust-Luga and Novorossiysk to Asia.

Thus, a year after the war began, Russia has managed to keep its flow of oil.

According to data from the Russian government and the International Energy Agency (IEA), during 2022 the country achieved increase its oil production by 2% and its export earnings by 20%up to US$218 million.

“So far, Russian oil exports have proven resistant to sanctions, import embargoes and buyer boycotts,” the IEA said in a November 2022 report.

“In October, total oil exports were 7.7 mbd (million barrels per day), just 400 kbd (thousand barrels per day) below pre-war levels.”

“Russian crude oil exports in October were virtually unchanged from pre-war levels, at 4.97 mbd,” the IEA notes.

Tanker truck at the Rosneft gas station in Moscow. (GETTY IMAGES).

long-term impact

With the high prices of oil and gas after the Russian invasion and the redirection of its exports, the drop in sales of Russian fuels in Europe during 2022 it did not dent the Kremlin’s income.

Experts say that the full impact of the sanctions against Russia will only be seen in the long term.

However, the latest IMF World Economic Outlook report, released at the end of January, shows that the Russian economy appears to be stronger than previously thought.

The agency forecast is that Russia will grow 0.3% this year, which represents an improvement compared to the contraction of -2.2% in 2022.

The figure is well above the contraction of -2.3% for 2023 that the IMF had forecast for Russia last October.

“With the current G7 oil price ceiling, the export volume of Russian crude oil is not expected to be affected significantly, with Russia redirecting its trade from countries that sanction to countries that do not sanction,” a spokesperson said. of the IMF.

Heavy government spending to maintain the military and the invasion of Ukraine is also believed to have helped sustain Russia’s economic activity amid the turbulence.

“Russia is still a formidable force in the global energy market”Sergey Vakulenko, an energy expert at the Carnegie Endowment for International Peace, a Washington think tank, told the New York Times.

“Opposing such an important player is not easy and it won’t happen in a day.”

Indeed, the IMF warns that the impact of Western sanctions against Moscow has not yet materialized.

“The Russian economy is quite dependent on capital goods coming from Western countries. As time goes by, we expected the impact of those sanctions to be greaterPetya Koeva Brooks, deputy director of the IMF’s Research Department, told Euronews.

“If we look to the medium term, if we look to 2027, the level of production that we are projecting for the Russian economy is significantly below what it was before the war. The war is expected to have a very permanent and considerable impact on the Russian economy,” he added.

Source: Elcomercio