Western sanctions are hurting Russia’s economy, but the Kremlin’s war chest is still teeming with cash thanks to soaring commodity prices, new data shows.
Russian oil, gas and metals exports fell dramatically last month as sanctions announcements spooked international buyers, according to Kremlin estimates seen by Russian daily Vedomosti – but rising prices have softened the impact on state revenue.
Since the start of Russia’s war against Ukraine and the response to Western sanctions, Moscow has kept silent about its exports and financial statistics. The Russian government even claimed that its economy was booming and that the sanctions were more painful for the West.
However, it is clear that the sanctions – and Russia’s own efforts to use energy exports as a political weapon – are having an impact.
Oil deliveries in physical terms fell 13% from May to June, from 18.9 million tonnes to 16.5 million tonnes, but revenues actually increased from 10.2 billion euros to 10 .5 billion euros, and are higher than those of the same period in 2021.
Russian gas exports fell by about a quarter in June from a year ago, but profits reached $11.1 billion from $3.6 billion. Crude oil prices are about double last year’s level, while natural gas prices are about six times higher.
EU sanctions on oil won’t come into force until later this year or in 2023, while gas isn’t even subject to EU sanctions. This means that the fall in trade is “more about risk reduction, self-punishment[ing]where companies perceive Russian fossil fuels as toxic,” said Maria Shagina, a researcher at the International Institute for Strategic Studies.
The West – including the EU – has hit Russia with waves of sanctions since Moscow invaded Ukraine in late February. Besides oil and some metals, the EU has also banned imports like coal and gold and banned the export of key dual-use technologies like microchips in a bid to blunt Russia’s war economy.
Beyond Russia’s exports, another key indicator is the quantity of the country’s imports: some analysts estimate that imports in April could have fallen by 80% compared to the previous year, a sign that the industry and the country’s economy is shrinking.
The International Monetary Fund on Tuesday published its growth forecast for the year, predicting a contraction of 6% in Russia, while EU economies such as Germany will grow by 1.2%, France by 2.3% and Italy by 3%.
Stable cash flow
Although the Russian data shows the hit to exports, it also raises questions about the effectiveness of Western sanctions.
Shagina said the EU’s announcement of its intention to embargo Russian oil “indicated to the market that oil supplies would be scarce…so prices soared, which actually benefited to Russia”.
In June, European Commission President Ursula von der Leyen said EU sanctions were “grinding the Russian economy” and argued that reducing dependence on Russian energy would “drain the Putin’s war chest.
But Russian state revenues from oil and gas will actually increase in 2022 compared to last year, according to Russian government forecasts included in the Vedomosti report. Around 41% of the government’s budget will come from the two fossil fuels this year – around 170 billion euros – compared to 35.8% in 2021.
For Alexander Gabuev, a senior analyst at the Carnegie Moscow think tank, whether the sanctions work depends on “what the word ‘work’ means”.
Russia will “definitely” go into recession and see its telecommunications, arms manufacturing and oil production sectors atrophy as it is denied access to Western high-tech imports, he said. , but added: “Does [sanctions policy] change the Kremlin’s calculation and create enough pressure for Russia to change its policy towards Ukraine? Nope.”
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