Russia’s energy sector sanctions are hurting Moscow more than any other type of sanctions, especially as energy resources have largely become the only significant remaining source of compensation for the Russian Treasury, which has suffered from the war with Ukraine.
In recent weeks, the European Union, Russia’s biggest oil buyer, has been working on a plan to ban imports until the end of the year, although opposition from Hungary’s Victor Urban has slowed progress.
For energy sanctions to succeed, a report in the American magazine Foreign Affairs says the sanctions must be carefully designed to hurt Russia more than Western countries.
The report adds that the primary goal of the sanctions should be to reduce the flow of dollars to Russia, not to reduce oil and gas exports from Russia, which will further increase global energy prices.
Previous rounds of sanctions against Moscow have limited Russian energy-related investments and technologies, targeting the country’s refineries and liquefied natural gas infrastructure.
Canada, Britain and the United States also banned Russian energy imports, but this had limited effect because all three were small consumers of Russian oil and gas.
Until recently, Russia’s largest energy buyer – the European Union – not only avoided imposing sanctions on energy exports, but also designed its financial sanctions to allow Russian fuel to flow.
The European Union has also announced that it intends to suspend all imports of Russian natural gas in the coming years.
Europe buys more than half of Russia’s total exports of crude oil and refined products such as gasoline, diesel and jet fuel.
Meanwhile, the tax on these exports now saves about a quarter of Moscow’s budget, and so the EU’s attempt to stop buying Russian oil represents a dramatic shift in the global response to Russia’s invasion.
But European plans also pose a challenge to Washington.
So far, the United States has refrained from imposing the toughest sanctions on Russian energy, including secondary sanctions used against Iran to restrict oil sales to other countries.
This reluctance of the Biden administration’s respect for the EU explains the issues that affect Europe’s energy security, and fears that a reduction in global oil supply could drive up gasoline prices – and consequently inflation.
If Washington and its allies are to achieve their goals of imposing sanctions on Russia’s energy, they will have to deal with a difficult dilemma: rising global oil prices, the report said.
Although Russia was given a huge discount, exporting more than $ 30 a barrel, Russia has almost the same yield as last year.
The more successful global sanctions are in preventing the export of large quantities of Russian oil, the higher the world oil price, which will lead to Russian compensation.
Most of Russia’s oil exports are shipped abroad, so in theory it can be sold anywhere.
The magazine says the United States needs to figure out how it can reduce Russia’s energy revenues without hurting the global economy.
Predictions are that if the EU stops all purchases, Russia’s exports will fall by about 2 million barrels per day. Russian government officials made similar predictions, predicting a 17 percent drop in Russian oil production this year.
Given that Russia exported less than eight million barrels of crude oil and refined products per day before the war, this is a major blow and a significant reduction in global oil supply.
The magazine says that in order for energy sanctions to put real pressure on the Russian government’s budget, it must reduce the price of Russian oil by imposing a price ceiling on the buyer country that allows Russian oil to flow, but diminishes Russia’s interest in it.
He says Russia has many reasons to continue exporting as long as the price is slightly higher than the final cost of production.
Although Russia could theoretically halt exports, its stockpiles are often overcrowded, and the Kremlin’s only alternative to cheap selling is to stop producing and watch its deepest industry freeze as its revenues plummet.
Beyond the sanctions coalition, China is the largest buyer of Russian oil, accounting for about 15 percent of Russia’s total exports, mainly through pipelines.
The magazine says that sanctions can be imposed on countries that buy Russian oil at a higher price, while the United States and others can offer exemptions for oil shipments that meet the price ceiling.
The United States has used a similar system to limit Iran’s oil exports, cutting Tehran oil sales by more than 60 percent and locking tens of billions of dollars in revenue into safe haven accounts.
Source: Lebanon Debate
