this wild Russian invasion of Ukraine has triggered the West’s broadest sanctions package in modern times. The aim is to impose a prohibitive cost on Moscow’s war effort, pressuring the Kremlin to pull back its troops or at least enter negotiations. The Russian economy looks stark on the surface. The International Monetary Fund forecast in spring that GDP would shrink by 8.5 percent this year, a decline surpassing the 2008 financial crisis and the ruble crisis of 1998. It is a costly bid, yet Moscow remains more resilient than expected because its main income source remains intact. Revenue from gas, oil, and coal exports rose in the first 100 days of the conflict according to a study released recently.
since the start of the conflict, the Kremlin has seen a steady inflow of funds from fossil fuel sales. Analysts at the Helsinki-based Center for Energy and Clean Air Research (CREA) estimate that exports of fossil fuels reached 93 billion euros during this period, an unprecedented figure. “There is a lot of money at stake,” says Lauri Myllivyrta, lead analyst at CREA, noting a roughly 50 percent revenue increase over the same period last year driven by market tightness and high energy prices. This means that oil sales alone continue to cover more than the daily costs of the war. CREA’s analysis suggests that crude and gas income more than offsets the occupation’s daily expenses.
the European Union has been Moscow’s main customer for about a century and accounted for about 61 percent of energy exports during this window. Yet even as sanctions on Russian gas and the embargo on sea-borne crude oil are gradually tightened, the EU is applying new pressure. Since the invasion began, gas purchases by the bloc fell by about 23 percent and crude oil purchases by about 18 percent. When these volumes are combined with reductions in purchases by the United States, Turkey, and Egypt, Russia’s total exports declined by roughly 15 percent in May compared with the war’s start.
Exports fall, income rises
yet revenue losses have not translated into lower federal budgets. In fact, revenue that funds Russia’s federal budget still leans heavily on energy profits, and even with discounts on fossil fuels, overall income remained substantially higher than a year earlier by a margin of about 60 percent. The sale of hydrocarbons, led by oil, continues to bring in more money than the cost of war on a daily basis, according to CREA’s latest assessment. Russia has pursued price strategies that keep market share high in countries such as India, China, and even France, which has stepped up imports of liquefied natural gas and oil despite Western sanctions. France’s position, however, looks set to shift from December when Europe’s embargo on sea-delivered crude oil broadens further.
The measures taken by Western nations have also shifted demand toward other buyers. China has emerged as a major purchaser, overtaking Germany in this role. India is the country that increased its imports the most, while France, Saudi Arabia, and the United Arab Emirates have all boosted their purchases as well, taking advantage of discounted Kremlin offers.
Penalties in the room
Europe still has tools to reduce the revenue Moscow uses to fund the war. Gas sanctions remain a critical lever, as do penalties targeting companies that transport fossil fuels. Between April and May, roughly 68 percent of Russia’s oil shipments traversed European and British-dominated routes. CREA notes this as a vulnerability: imposing stricter sanctions on tankers carrying Russian crude would curb the ability to divert exports to other regions.