Sanctions on Russian oil are not working, for now

In recent months, Russia has managed to sell to Asia, especially China and India, almost all the oil that it could not have sold to Europe and the United States due to the sanctions imposed for the invasion of Ukraine: thanks to the high prices of furthermore, Russia has managed to obtain higher than expected revenues from the sale of oil and has almost completely canceled the effects of the sanctions imposed by the West in this sector.

This does not mean that the sanctions are not working as a whole: the Russian economy is severely weakened, and it is still too early to say how well it will be able to withstand the economic pressure imposed by the West. But the specific sanctions on oil, which had been imposed by the United States and will be imposed by the European Union and the United Kingdom by the end of the year, were effectively rendered ineffective by the intervention of China and India: the New York Times he called the Western oil sanctions “a boomerang”, because they are not damaging Russia but have nevertheless caused a rise in prices worldwide, with consequences that for now are being felt more than anything else in Western countries.

After the start of the invasion of Ukraine, the US almost immediately blocked imports of Russian oil, while the European Union and the United Kingdom pledged to do the same by the end of the year (although the Union will block only two thirds of imports, and with wide exceptions). Although the bulk of the sanctions come into effect in months, various Western refineries and energy companies have already independently decided to block or reduce imports of Russian oil, to avoid running into sanctions and financial difficulties.

For this reason, Russian oil imports into Europe have dropped significantly over the past three months. But in the meantime various Asian countries have intervened, especially China and India, which have effectively nullified the negative effects that these declines could have had on Russia. According to estimates cited by New York Timesthe amount of Russian crude imported into Europe fell by 554,000 barrels per day from March to May (from 2 million to 1.5 million, roughly), but in the same period Russia managed to sell 503,000 barrels per day to Asia. day: practically a complete replacement.

China is the country that is benefiting the most from this change. Russia has become its largest supplier of crude oil, overtaking Saudi Arabia in the past two months: in May, Russian supplies had increased by 55 percent compared to May 2021, reaching an all-time high.

But the biggest surprise was probably India, which from a minor importer has become one of the main buyers of Russian oil in recent months: it has gone from 60,000 barrels of crude per day imported at the beginning of the year to 430,000 imported at May. For India, buying Russian crude oil has become particularly convenient for two reasons: firstly because Russia is selling its crude oil at very discounted prices, to compensate for the fact that buying it has become more risky due to sanctions (for example, companies Western insurance companies refuse to insure the cargoes, and it is difficult to obtain loans from banks for advances).

Secondly, India has an important refining industry, and exports Russian crude oil that is refined and paid very little abroad, making huge gains thanks to the fact that the price of energy is very high. Moreover, Indian refineries also supply Europe, making it very likely that European countries have inadvertently bought refined Russian crude from India, at a high price.

Other Asian countries, such as the Philippines and Sri Lanka, are also increasing their imports of Russian crude, albeit in less significant quantities.

The huge increase in the price of energy is greatly benefiting Russia’s finances, which in June, according to estimates by the Ministry of Finance, should earn 6 billion dollars more than expected, thanks to the increase in prices internationally.

It would have been much more difficult for Russia to find alternative buyers for its natural gas, which is more difficult to transport by ship and for which there are few pipeline connections to Asia. But Europe, which depends on gas more than it depends on Russian oil, has never stopped buying gas from Russia, nor has it threatened to do so, solving this problem for Vladimir Putin. Now, indeed, it is Russia that is reducing gas supplies to Europe, probably to scare European governments and make gas storage more difficult for the coming winter.

At least for now, therefore, the Western sanctions on oil are not having any effect, but we must still be a little cautious before calling them a complete failure. First of all, they have yet to enter into force: the decline of 500,000 barrels per day (out of a total of 2 million) in imports is due to the initiative of individual companies and refineries, but when the total blockade of Russian oil (or two-thirds , as in Europe) then things could change.

More generally, it is too early to give an overall judgment on the effectiveness of the sanctions. It is true that Russia has shown surprising resistance in recent months, even if many of its results are attributable more to the decisive action of its Central Bank. But most experts believe the bulk of the effects should be seen in the coming months, starting in the fall, as sanctions take effect and have time to become effective.

The article is in Italian

Tags: Sanctions Russian oil working

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