The writer is chief economic adviser to Ukrainian President Volodymyr Zelenskyy
Western sanctions on Russian fossil fuels are a ghost. Revenues from the sale of oil, gas and coal to Kremlin coffers are exorbitant, having doubled in the first 100 days of the war. The Western energy sanctions regime is not working. It’s for a very simple reason: it doesn’t exist.
Prior to Vladimir Putin’s full-scale invasion of Ukraine in February, Russia was comfortably the world’s largest exporter of fossil fuels. Today, it can sell oil, gas and coal directly to every country except the United States, which was initially a negligible customer.
Some influential American and European commentators argue that restrictions on Russian oil exports inflict suffering on ordinary citizens of Western countries without reducing Kremlin revenues. They argue that Western sanctions have backfired.
Yet the measures the West has taken so far cover less than 5% of Russia’s pre-war crude oil exports. Maritime crude exports, although down since mid-June, remain higher than at the start of the invasion. In large part, that’s because it’s legal to import Russian oil into the EU and the UK, and will remain so until at least December. Every week, around 10-20 million barrels of crude arrive in Europe from Russian ports as traders turn so-called “phase-outs” into a feeding frenzy.
Even in the United States, the only country to impose sanctions on the direct import of Russian oil, motorists — perhaps unknowingly — continue to fill the tanks of their vehicles with gasoline of Russian origin. In what can only be described as a global laundering operation, Russian crude is routed to foreign refineries and then imported into the United States as gasoline. Once the oil has been refined into other products, it can legally enter the United States without violating sanctions.
The UK will also continue to import millions of barrels of Russian blended oil in the coming months. This trade is likely to continue even after a UK ban comes into force at the end of this year. This will be possible thanks to exceptions in the rules which will allow companies to import CPC Blend, crude oil which is a mixture of Kazakh and Russian products, transported via a pipeline from the Caspian Sea.
These are hardly the embargoes Americans and Britons had come to expect when President Joe Biden and Boris Johnson, the outgoing British Prime Minister, announced punitive measures in March. The failure to impose an effective embargo on Russian oil and gas is inflating Putin’s income and funding war crimes in Ukraine.
To some extent, today’s high energy prices reflect traders’ anticipation that restrictions on Russian oil are approaching. But crude oil prices rose for months before the invasion and before the West announced sanctions.
Additionally, West Texas Intermediate and Brent crude oil prices have fallen steadily since early June, just as Russian crude exports began to decline. The claim that current oil prices are the result of minimal restrictions imposed by Western governments on Russian fossil fuel exports does not stand up to scrutiny.
The big energy companies, which have made huge profits over the past six months, are far more responsible for the pain that energy consumers are feeling. Companies such as BP & Shell in the UK, which made $8.5 billion and $11.5 billion respectively from April to June, and Wintershall in Germany, which made $1.9 billion, are doing very well, but these benefits are not new to the industry. This is an industry that has made eye-popping profits every day for the past 50 years.
In recent days, policymakers in the EU and UK have watered down their existing restrictions. They have created a straw man in their sanctions regimes. Without having given the sanctions a chance to work properly, they are now dismantling them. This rollback rewards Putin even as his forces commit atrocities in Ukraine and Russia expands the territorial objectives 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 supporting Ukraine needs to stop funding Putin’s regime. The status quo only serves to prolong the war, which has paralyzed the entire world 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 cap on Russian oil prices.
The sooner Putin is arrested, the sooner we can continue to rebuild Ukraine. This means keeping Russian fossil fuels in the ground and turning phantom energy sanctions into real sanctions.