Despite Sanctions, Russian Economy Booms

The Russian economy has largely defied Western sanctions, thanks to its oil that many countries cannot do without. Russia’s decision to invade Ukraine early this year attracted an avalanche of sanctions from the US and its allies, painting a tumultuous future for the Slavic country’s economy.

But in a surprising turn of events, Russia’s ruble and stock market have remained relatively stable despite the sanctions. Below, Insider reported on the findings of an independent research group, Centre for Research on Energy and Clean Air (CREA), which shows how oil patronage from the European Union and others keep the embattled economy afloat.

Russia earned $66 billion from fossil fuel imports in the two months since its invasion of Ukraine as it profited from surging commodity prices despite facing tough sanctions.

Of that, the European Union imported 71% of Russian fossil fuels worth $46 billion through shipments and gas supply, a report by CREA showed.

This compares with imports worth roughly $147 billion for the whole of 2021, or about $12.3 billion a month, the Guardian reported.

Germany was the largest importer — receiving orders worth $9.6 billion. Italy, China, Netherlands, Turkey, and France were the next biggest buyers, the study found.

The research highlights how Russia has continued to benefit from energy exports, a key source of revenue for the economy, despite Western nations moving to sanction the country over its aggression in Ukraine.

While the US and UK have imposed bans on Russian energy imports, the EU has so far agreed to only ban Russian coal. Because these moves have a direct effect on the global energy market, prices of oil and gas have soared due to the twin threats of lower supply and fading import volumes.

Some countries have tried to “self-sanction” by avoiding Russian fossil fuel imports. Foreign oil deliveries from Russia dropped 20% in the first three weeks of April compared to the period before the invasion, the CREA data showed. But the economy has been able to offset lower volumes with higher prices, which means its revenue nearly doubled compared to the previous year despite curbs on exports.

Shipping data also showed that Russia is struggling to divert cargoes originally meant for European buyers. The Wall Street Journal recently reported more than 11.1 million barrels leaving Russia have been loaded onto cargoes with unknown destinations.

Meanwhile, the EU has struggled to shake off its dependence on Russian imports — especially gas — despite wanting to reduce its reliance. Figures indicate the bloc has attempted to cut Russian supplies, as data compiled by think tank Breugel shows the bloc’s imports of Russian gas were 26% lower in the first week of April than in the same period in 2021.

But Russian President Vladimir Putin doesn’t seem to be as threatened by a European ban on energy as EU leaders perhaps might expect him to.

“The so-called partners from unfriendly countries concede themselves that they won’t be able to make do without Russian energy resources, including without natural gas, for example,” he told a televised government meeting on April 14, Reuters reported.

The CREA said fossil fuel exports have helped fund Putin’s war against Ukraine, and recommended replacing Russian fossil fuel imports with clean energy.

“Fossil fuel exports are a key enabler of Russia’s military buildup and brutal aggression against Ukraine,” it said in the report.

“The EU and many European countries have already announced ambitious new clean energy and energy efficiency targets, policies and measures — these will provide a replacement for imports from Russia over the next few years. But imports need to stop now,” it added in a tweet.

Although Russia has found two major export destinations – China and India for its oil export, Europe is still its largest market. A unanimous decision by European leaders to sanction Russian oil will deal a huge blow to its economy. But without an alternative to Russia’s oil, the EU’s hands are tied, even though many of its leaders see the situation as an opportunity to transit to cleaner energy.

The major challenge lies on the timeframe – how long it will take before Europe finds alternative to the much needed gas that the bloc solely depends on. The REPowerEU, a plan developed by the EU to end reliance on Russian gas is expected to be actualized by 2030, which is far too long.

With the rocketing cost of gas in Europe poised to cause unbearable hardship and no alternative to Russian energy yet, Russia has found a solid edge to mitigate the impacts of sanctions. Forcing European countries to pay for gas with ruble is also another strategy Russia has deployed to keep the ruble stable.

The Russian ruble has risen to pre-conflict levels against the US dollar, hitting a two-month high. Its current account has also surged to $58.2 billion in the first quarter – its highest level since 1994.