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Robert Rapier

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How Sanctions Have Increased Russia’s Oil And Gas Revenue

  • Russia’s oil and gas revenues hit another record high despite sanctions designed to hurt the Russian economy.
  • The removal of some Russian oil from markets only served to send oil prices higher, boosting revenues from the oil that it is able to sell.
  • There is no way to remove Russian oil from the market entirely without sending oil prices much higher, possibly above $200.

As I warned in my February article Russia Is A Major Supplier Of Oil To The U.S., Russia could potentially benefit from the sanctions on its oil exports. Although Russia hadn’t yet invaded Ukraine when I wrote that article, I warned that if it did:

“Russian sanctions would be put in place, potentially reducing the available oil supply in a tight market. If Russia could still sell all the oil it could produce to countries that refuse to abide by the sanctions, it might do well financially with an oil price spike.”

We now have data in hand to confirm that the subsequent sanctions on Russia’s oil are in fact boosting Russia’s oil revenues:


Although the U.S. has stopped buying Russian oil, the challenge remains that Russia is one of the largest global producers and exporters of oil. There is no way to completely remove Russian oil from the market without sending oil prices much higher — perhaps to $200 a barrel.

Further, as oil prices go higher it increases the appeal of Russia’s oil. Right now, China and India, for example, have tremendous incentive to buy discounted Russian oil.

In other words, it is a classic catch-22. In attempting to punish Russia by keeping its oil off the market, Russia is enjoying a net benefit of higher oil revenues.

That’s not to say that other sanctions aren’t having the desired impact. By all accounts, life is becoming more difficult in Russia due to the many sanctions that have been put in place.

But in a world that is still heavily dependent on oil, the only way to effectively impact Russia’s oil revenues is to reduce global dependence on oil.

By Robert Rapier

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Leave a comment
  • Mamdouh Salameh on May 25 2022 said:
    Even before the sanctions, Russia as the world’s largest exporter of both natural gas and oil exporting 8.0 million barrels a day (mbd) between crude and petroleum products, was benefiting from high prices of crude and gas like other major producers.

    Oil prices have been rising since January 2021 with Brent crude price hitting $100 a barrel in January 2022 long before the Ukraine conflict came on the scene.

    The main reason for the surging oil prices is a global oil market in its most bullish state since 2014 with a global oil demand in a super-cycle phase of accelerating demand growth which could last up to ten years if not more and take Brent crude to $120 a barrel in the next few years. And while the Ukraine conflict has initially added a premium estimated $25-$30 to a barrel of oil, this premium has now fizzled out leaving oil prices to market forces.

    Another reason is a serious underinvestment in oil and gas since 2019 leading to a tightness in the market and a shrinking global spare production capacity.

    The harshest and most comprehensive Western sanctions in history have failed to undermine the Russian economy. The great irony is that Russia’s economy won’t only survive the sanctions but it could also emerge from the Ukraine conflict in far better shape than the economies of the Western nations imposing the sanctions.

    Today Russia’s economy is far better prepared to withstand the sanctions than in the aftermath of the annexation of the Crimea in 2014 when global oil prices collapsed. There are many reasons for this.

    The first is that President Putin planned and timed the start of his military operations in the Ukraine very cleverly utilizing many economic, geopolitical and other factors working in his favour. Oil and gas prices are at their highest levels. As a result, Russia is raking in cash. Moreover, payment for Russian gas and oil exports in rubles is transforming the ruble into an energy currency. This undermines the petrodollar, enhances the role of the petro-yuan and paves the way for other currencies like India’s rupee to become oil currencies as well.
    The second reason is that there will be no replacement to Russian oil and gas exports now or for the foreseeable future.

    The third reason is that in the aftermath of the 2014 sanctions Russia embarked on an extensive diversification of the economy. As a result, Russia’s economy has become almost totally self-sufficient. Russia doesn’t need to import anything unless it wishes to. That is why the purchasing power of the ruble inside Russia hasn’t been affected by the sanctions and its trade surplus is projected to rise from $120 bn in 2021 to $150-$160 bn in 2022.

    The fourth reason is that Russia is also a net exporter of both energy, key foodstuffs and many rare and precious metals essential for the running of the global economy. Its strong trading relations with both China and India the world’s largest and third largest economies respectively based on PPP have ensured that plenty of foreign currency is flowing into Russia. Russia’s trade with China has risen from $13 bn in 2011 to more than $150 bn in 2022.

    A fifth reason is that Russia’s lifting cost of a barrel is the cheapest in the world. The reason is that Russian oil companies pay for their operational costs in rubles while they receive dollars and euros for their exports. Moreover, Russia needs an oil price less than $40 a barrel to balance its budget. Therefore, it benefits more than other oil exporters from rising prices.

    Oil and gas will continue to drive the global economy throughout the 21st century and probably far beyond.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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