The oil embargo and the establishment of a “price ceiling” turned out to be a very successful sanctions measure. Despite the investigations that have already emerged about how Europe continues to participate in the transshipment of Russian oil in the ports it controls and transport it in its own tankers, the most important task has been solved: the Urals discount that formed on its own is now fixed on paper.
And although a sharp drop in prices (to $38 per barrel in early January ) gave way to growth , they have never come close to the “ceiling” of $60 per barrel since the introduction of restrictions. This suggests that, unlike its Russian namesake, the European "December 5 Party" is quite effective. If we assume that the “ceiling” will remain for the whole of 2023, Russia will lose only on crude oil exports from $35 billion (if exports are reduced by no more than 5–7%) to $50–52 billion (if the reduction exceeds 25%) .
The restrictions on petroleum products that have just been introduced can have an equally serious effect: in 2021, Russia exported almost twice as much of them as it consumed itself — and at the same time, the European market accounted for 53% of export deliveries in 2021, and about 44% in November 2022 . It is quite difficult to reorient falling volumes. On the one hand, domestic consumption has not been growing for more than a decade, on the other hand, the main buyers of our oil - from China and India to Turkey - have excess oil refining capacity, and at least ten countries are ready to fill the European gap in this category of fuel products. Therefore, I assume that the main result of this innovation will be an increase in Russian oil supplies at prices in the range of $50-55 per barrel, with a significant drop in the export of petroleum products. Accordingly, processing plants will be under attack, and the structure of energy exports will return to Soviet times with the dominance of crude oil.
The structure of energy exports will return to Soviet times with their dominance of crude oil
If my assumptions are correct, then the supply of crude oil in 2023 will increase by 5–8% to 220–225 million tons, while shipments of petroleum products will decrease by 30–35% to 95–105 million tons. This will lead to the need to reduce oil production by 12–15% compared to 2022, given the stability of domestic consumption. Such a decline will be the largest annual decline since 1992, but it will not be fatal for the Russian economy. At the same time, the budget will lose at least 35-40% of oil and gas revenues, reducing them from a record 11.6 trillion rubles in 2022 to 6.8-7.5 trillion. As many analysts note , this will be fraught with an increase in borrowings, a significant emission of money and, as a result, acceleration of inflation. The budget deficit, in my opinion, will be from 4 to 4.5% of GDP. I note that this is a far cry from the US federal budget deficit of 12.4% of GDP in 1942, when the country had not yet entered the war in Europe. Therefore, my main conclusion, repeated many times , is that energy sanctions have stopped the development of the Russian economy for a long time, but they are not able to destroy it or even force Vladimir Putin to stop the war in Ukraine. The significance of these measures lies primarily in the fact that the West imposed sanctions that turned out to be beneficial for even non-Western countries to comply with - they simply save on turning Russia into a world pariah.
The West has imposed sanctions that are beneficial not only for Western countries to comply with
If we talk about what can be done to further put pressure on Russia, then here the "traditional" measures are practically exhausted. Even if restrictions on nuclear energy are included in the tenth package of sanctions (which is doubtful), this will be the same “shot in the leg” as the pressure on Gazprom, which led to an increase in gas prices in 2021-2022. Rosatom builds its stations mainly on loans issued to it by the Russian government or Russian banks , and, accordingly, does not bring any currency into the country (and the nuclear fuel it exports is mined mainly in Kazakhstan ). The remaining proposals of the next package are also not able to change anything in the economic situation in Russia. They again (as, for example, in relation to diamonds) suggest the introduction of certain restrictions on the purchase of goods in Russia, and not on their supply to our country.
I think we have come to a point where the only serious potential is reverse trade and financial restrictions. Moreover, today many countries of the world (like Hong Kong, Singapore, the Emirates or Turkey) receive significant benefits from circumventing, rather than complying with, Western export sanctions. Although it may seem disadvantageous, European countries and the United States should completely stop exporting anything to Russia. The Europeans need to adopt a kind of analogue of the American Trade with the Enemy Act of 1917 , and the United States needs to extend its main provisions to the Russian Federation. This could open a whole new chapter in sanctions policy. Within the framework of such a regime, the supply of a mass of necessary goods to Russia will stop: from seed for the illusory “sovereign” domestic agriculture or vaccines for livestock and poultry to, for example, hops for making beer or fermented milk cultures (paradoxically, neither one nor the other in almost never produced in the country).
At the same time, it would be worthwhile to stop conducting transactions in dollars and euros with all Russian banks, completely switching the country to the yuan beloved in the Kremlin. In addition, do everything possible to stop the use of all Western social networks and Internet services in Russia. Probably, Western countries should establish a Compensation Fund for companies registered in their jurisdictions, which could cover a significant part of the losses from the complete cessation of the activities of these companies in Russia. Today, everyone knows that the majority of even formally “left” companies from the country continue to be present on the Russian market or create conditions for a possible return. Thus, it will be possible to ignore the Kremlin's decisions that make it impossible to sell assets in the country. Subsequently, all payments within the framework of the activities of this fund could be presented to the Russian authorities as a condition for the restoration of business relations with the West.
It is worth stopping transactions in dollars and euros with all Russian banks
Of course, the most important instrument of pressure is the introduction of broad secondary sanctions. Numerous data indicate that the flow of Western high-tech products to Russia in recent months has not only not decreased, but, on the contrary, has grown in many positions ( including even microchips and semiconductors ) . This fact indicates the obvious ineffectiveness of the sanctions and requires original solutions. First of all, the shift of responsibility from companies and organizations that intermediary in this market (they can disappear and re-register and therefore easily avoid liability) to banks that process the relevant payments. Unable to evade responsibility and suffering catastrophic losses if secondary sanctions are imposed against them, banks around the world could become the most effective tool for enforcing Western regulators' decisions. Without their involvement, the situation most likely has no chance to change.
Finally, it would be worth setting a significant pause (or even a moratorium) on the introduction of new personal sanctions. This is necessary for at least three reasons. Firstly, the vast majority of those 2.5+ thousand people for whom they are introduced do not experience obvious problems due to these restrictions. Basically, these are officials and security officials who have not left Russia for a long time and do not have property and accounts in the West. Secondly, sanctions against large businesses, a significant part of which transferred money to Western jurisdictions in full compliance with legal requirements, are counterproductive . They are now pushing Russian entrepreneurs and Russian money back into Putin's "mordor" instead of dividing the Russian elites and depriving the regime of financing. Thirdly, which is also important, the discussion of lists for personal sanctions has long turned in the West into a PR tool for all sorts of anti-Putin activists and a method of imitating violent activity for officials. It is much easier to impose restrictions on a dozen functionaries who do not decide anything than, for example, secondary sanctions against smugglers who help the Kremlin bypass existing bans.
Easier to impose restrictions on functionaries than secondary sanctions on smugglers who help the Kremlin bypass bans
However, summing up the results of the first year of the “latest” sanctions policy, I would note a number of simple circumstances. First of all: practically no economic sanctions can change the political course of the Kremlin. In order for this to happen, the open discontent of the population generated by their effect, the hopes for which are illusory, is necessary. In addition, the Russian economy is rather primitive: exports are represented by raw materials, the shipment of which cannot be prohibited, since there is always demand at one price or another; and the domestic market is provided by domestic companies, in respect of which the sanctions are contrary to "humanitarian" considerations (as in the supply of medicines or raw materials for the food industry).
In addition, the Russian leadership has reduced the planning horizon to the limit. The inhabitants of the Kremlin do not seem to care at all what will happen to the domestic economy “after 2030” - so the reasoning that Russia will undoubtedly lose from sanctions in the future does not resonate much in the country. And finally, it must be admitted that Russian managers - especially the "liberals" from the financial and economic bloc of the government - were able to effectively neutralize those sanctions that could provoke panic and lead to a financial collapse. Everything else is not perceived by the majority of the Russian population as a "real" crisis. Therefore, the second year of the war will most likely take place in an atmosphere of purely military confrontation, when the Rammstein format will unambiguously dominate the format of the decisions of the G7 finance ministers or the European Commission.