The writer is chief economic adviser to President Volodymyr Zelenskyy of Ukraine
Western sanctions on Russian fossil fuels are a phantom. The revenues flowing into the Kremlin’s coffers from foreign sales of oil, gas and coal are sky-high, having doubled in the first 100 days of the war. The west’s energy sanctions regime is not working. That is for a very simple reason — it does not exist.
Before Vladimir Putin’s full-scale invasion of Ukraine in February, Russia was comfortably the world’s largest fossil fuel exporter. Today it can sell oil, gas and coal directly to every country except the US, which was a negligible customer to begin with.
Some influential US and European commentators assert that restrictions on Russian oil exports are inflicting pain on ordinary citizens in western countries without reducing the Kremlin’s revenues. They contend that the west’s sanctions have backfired.
Yet the measures that the west has taken so far cover less than 5 per cent of Russia’s prewar crude oil exports. Exports of seaborne crude, though down since mid-June, remain higher than at the start of the invasion. In large part, that is because it has been legal to import Russian oil into the EU and UK, and will remain so until at least December. Every week, some 10mn to 20mn barrels of crude arrive in Europe from Russian ports as traders turn so-called ‘’phase-outs’’ into feeding frenzies.
Even in the US, the only country with sanctions on the direct import of Russian oil, motorists — perhaps without knowing it — are continuing to fill the tanks of their vehicles with petrol of Russian origin. In what can only be described as a global laundering operation, Russian crude is taken to foreign refineries and then imported into the US as petrol. Once the oil has been refined into other products, it can legally enter the US without breaking sanctions.
The UK is also going to continue importing millions of barrels of blended Russian oil in coming months. This trade is likely to carry on even after a British ban comes into effect at the end of this year. It will be possible because of carve-outs in the rules that will allow companies to import CPC Blend, crude oil that is a mixture of Kazakh and Russian products, transported via a Caspian Sea pipeline.
These are hardly the embargoes Americans and Britons were entitled to expect when President Joe Biden and Boris Johnson, the UK’s outgoing prime minister, announced punitive measures in March. The failure to impose a genuine embargo on Russian oil and gas is turbocharging Putin’s revenues and financing war crimes in Ukraine.
To some degree, today’s high energy prices reflect the anticipation of traders that restrictions on Russian oil are coming down the line. But crude oil prices were increasing for months before the invasion and before the west announced any sanctions.
What is more, West Texas Intermediate and Brent crude oil prices have been coming down steadily since early June, just as Russia’s crude exports began to decline. The claim that current oil prices are a result of the minimal restrictions imposed by western governments on Russia’s fossil fuel exports does not stand up to scrutiny.
Big energy companies, which have posted enormous profits for the past six months, bear far more responsibility for the pain that energy consumers are feeling. Companies such as BP & Shell in the UK, which made $8.5bn and $11.5bn respectively from April to June, and Wintershall in Germany, which made $1.9bn, are doing very well, but these profits are nothing new for the industry. This is a sector which has made staggering profits every single day for the past 50 years.
In recent days, EU and UK policymakers have watered down their existing restrictions. They have created a straw man in their sanction regimes. Without having given sanctions a chance to work properly, they are now dismantling them. This backsliding rewards Putin even as his forces commit atrocities in Ukraine and as Russia expands the territorial aims of its illegal war.
Ukraine will never forget the support our partners have given us. But on fossil fuels, the west faces a clear choice. Anyone serious about their support for Ukraine must stop funding Putin’s regime. Business as usual serves only to prolong the war, which has hamstrung the entire global economy. The most effective solution must include a complete and immediate embargo on Russian fossil fuels in Europe and the rapid enactment of G7 proposals for a global price cap on Russian oil.
The sooner Putin is stopped, the faster we can get on with Ukraine’s reconstruction. That means keeping Russian fossil fuels in the ground and turning phantom energy sanctions into real ones.
