Russia stands to make significantly more off energy exports this year, despite a torrent of international backlash over its invasion of Ukraine.
Russia is expected to make $320 billion this year in energy exports to Europe and elsewhere amid a sharp increase in fuel prices, according to Bloomberg Economics. That level of revenue is more than a third over what the petrostate earned in energy exports last year.
Western nations have placed heavy sanctions on the Russian economy since Russian President Vladimir Putin ordered a full-scale invasion of Ukraine in late February. Though sanctions have drastically slowed Russia’s economy, Western nations have been unable to replace the significant quantities of Russian energy they have come to rely on in recent decades. The United States even placed an exemption for the energy sector in its latest round of sanctions on Russia’s largest financial institution, Sberbank.
“There is no doubt that the financial and other sanctions have weakened the Russian economy and its ability to source certain materials needed to pursue its war in Ukraine. But the sanctions fall short of crippling the economy, as long as they do not interrupt the flow of revenue from exports, which finances the budget and also ensures continued availability of foreign exchange to pay for needed (and unsanctioned) imports,” wrote Patrick Honohan, a fellow at the Peterson Institute for International Economics, in a blog post last week.
The European Union has acted just as reticent to put sanctions on Russian energy as the United States. EU officials approved sanctions on Russian coal last week, however, the sanctions will not kick in until mid-August reportedly due to lobbying from Germany. Coal also represents just a fraction of the energy that Europe imports from Russia. As Fortune reports:
In 2021, Russia accounted for roughly 70% of the E.U.’s thermal coal imports—that’s the kind of coal used to generate electricity—and despite attempts to diversify away from fossil fuels, around 16% of the E.U.’s total electricity production is expected to come from thermal coal in 2022, CRU Group data shows.
Those are high numbers, but they don’t tell the whole story.
While the E.U. pays roughly $850 million per day for Russian oil and gas, its daily coal bill is only around $20 million, according to recent reports.
European energy companies, in a nod to public pressure from Europeans, have stopped selling strictly Russian fuel. In a bid to secure goodwill from the public and to appear to be cracking down on Russian energy, European companies have begun blending Russian fuel with fuel sourced elsewhere and selling the blend instead, according to Bloomberg. The outlet reported:
When is a cargo of Russian diesel not a cargo of Russian diesel? The answer is when Shell Plc, the largest European oil company, turns it into what traders refer to as a Latvian blend.
The point is to market a barrel in which only 49.99% comes from Russia; in Shell’s eyes, as long as the other 50.01 percent is sourced elsewhere, the oil cargo isn’t technically of Russian origin.
The maneuver underpins a burgeoning and opaque market for blended Russian diesel and other refined petroleum products, one of the many that oil companies and commodity traders are using to keep Russian energy flowing into Europe while at the same time satisfying public opinion that demands an end to subsidizing Vladimir Putin’s war machine.