Russia set to earn €295bn from gas and oil global exports this year despite sanctions

Former Central Bank governor Patrick Honohoan: Sanctions fall short of crippling the Russian economy, as long as they do not interrupt the flow of revenue from exports.

As Europe prepares to join the US in hitting the Kremlin with tighter sanctions for its war on Ukraine, there are plenty of signs that Russia is finding ways to prop up its economy.

Cargoes of Russian crude oil have sold out for next month, and several Chinese firms used local currency to buy Russian coal in March. Gas flows from Russia to Europe have, if anything, increased since the invasion on February 24. None of these are the subject of restrictions.

Bloomberg Economics expects Russia will earn about $320bn (€295bn) from energy exports this year, up by more than a third from 2021. The rouble has already rebounded to its pre-war price against the dollar.

While Russia’s oil output is declining this month, its ability to keep the energy money flowing and boost its currency are frustrating western leaders. That resilience is also is handing President Vladimir Putin a win at home, even with the country increasingly isolated and the Russian military pulling back from swathes of Ukraine.

US warnings to India this week against aligning too closely with Moscow show an awareness of the limitations of sanctions in a world that has relied so much on Russian oil, gas and other commodities.

“There is no doubt that the financial and other sanctions have weakened the Russian economy,” Patrick Honohan, the former Irish central bank governor and now a senior fellow at the Peterson Institute in Washington, wrote in a blog post. “But the sanctions fall short of crippling the economy, as long as they do not interrupt the flow of revenue from exports,” he said. 

With Russia regrouping for a fresh offensive in eastern Ukraine, China is preparing to receive the first commodity shipments from Moscow paid for in yuan since several Russian banks were cut off from the international financial system.

Russian crude that would normally end up in refineries in Europe or the US is heading for Asia, where buyers, particularly in India, are taking advantage of steep discounts. 

Shipments from the Black Sea and Russia’s Baltic Sea ports of Primorsk and Ust-Luga started heading to India in March, following earlier cargoes from the same terminals to China.

Russia’s natural gas supplies, which like oil have yet to be sanctioned by the EU, continue to flow freely as Europe faces an energy cost crunch. 

Italy, one of the biggest buyers of Russian gas, has said that it would support a ban if the EU was united behind the idea, a move that Germany among others has so far opposed.

Europe relies on Russia for about 40% of its gas needs, with a third of those supplies traveling through pipelines crossing Ukraine. As the war started, the jump in prices meant it was cheaper for European utilities to order more Russian supplies under long-term contracts than to buy it at the continent’s hubs. 

As a result, Europe’s request for Russian gas increased, helping state-run exporter Gazprom to boost its daily sales to key foreign markets by 17% in March from a month earlier. 

• Bloomberg