Sanctions Even hitting Russia’s main money box hardly brings a quick solution to the war – “I hope I’m wrong,” says the expert.

European Union the planned import ban on Russian crude oil is unlikely to stop the Russian war machine for a long time.

With oil sanctions, the EU is closing Russia’s main currency, but this will only happen after a transition period of months, and despite the sanctions, Russia’s public finances are in good shape.

On Wednesday, the President of the Commission Ursula von der Leyen said the EU was preparing an import ban on Russian crude oil. The ban would take effect early next year. According to several media reports, Slovakia and Hungary, which oppose the ban, would be given a longer transition period.

So the EU member states seem to be finally ready for the measure that has been demanded within the EU for more than two months, since the beginning of the Russian invasion. The idea is to cut off the main source of income for the Russian economy and thus undermine the state’s ability to finance the war in Ukraine.

At the beginning of the year, about 40 percent of state tax revenue came from oil and gas production, primarily oil.

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“It’s hard to see the risk of an acute cash crisis.”

It will last however, long before oil sanctions erode Russia’s public finances so that the state’s ability to wage war would actually weaken, says a senior adviser to the Bank of Finland’s Emerging Economies Research Institute Laura Solanko.

The cost of the war to the Russian economy is unknown and difficult to estimate.

Solanko describes his own assessment as unhealistic. Russia is at war with existing equipment, and replacement equipment is also coming from stock. The wage costs of soldiers are not high on a state scale either.

“The direct budgetary impact of the war may not be great. I hope I’m wrong, ”Solanko says.

In any case, the economic situation in Russia before the attack began was strong.

Although the state is now unable to use its foreign exchange reserves and buffer funds due to sanctions, it has a budget surplus accumulated last year. In addition, revenues from oil and gas exports at the beginning of the year will be the highest for many years.

The state can also always borrow money from the central bank, and Western economic sanctions on the central bank do not prevent this.

“It’s hard to see the risk of an acute cash crisis. The background is that public finances have been managed terribly well and with determination. The country has no debt problem, ”says Solanko.

Likewise evaluated by a Senior Visiting Fellow at the Institute of Foreign Policy Maria Shagina.

“In the short term, the import ban will not affect Russia’s ability to channel money into hostilities,” he writes on Twitter.

Due to the proliferation of Western buyers, Russian crude oil is now being sold at a discount of almost $ 40 relative to North Sea Brent quality, but the rise in world oil prices has offset this effect, and Russia’s oil tax revenues have not declined.

“The import ban will tighten the screw over time,” Shagina estimates.

Clean calculated that the end of EU oil purchases could make a 15 percent cut in Russia’s state tax revenue, Solanko estimates.

From a Western perspective, the risk of oil sanctions is that Russia will be able to redirect at least some of its exports elsewhere, especially to Asia. It undermines the effectiveness of sanctions. If the embargo on energy trade were total, the state would quickly be in trouble, as it would lose almost half of its tax revenue.

“Then one would have to think about whether wages and pensions are paid or warfare,” Solanko describes.

Commission The import ban was immediately criticized.

For example, according to researchers at the incubator Bruegel, the immediate imposition of punitive tariffs on Russian oil and gas would be a much more effective measure than the ban on imports that would take effect after the transition period, as it would have directly affected the Russian state’s tax revenues.

At the same time, it would have softened the impact of sanctions on the European economy, as those dependent on Russian oil could have continued to buy.

The emeritus professor of economics at the University of Helsinki is in the same line Vesa Kanniainen.

Russia has scarce oil reserves and oil production cannot be easily reduced without causing major problems. This means that in order to ensure a steady flow of oil, Russia would have to lower the selling price of the oil in order to trade it despite the penalty, Kanniainen explains. He estimates that a 50 percent import duty would force Russia to lower the selling price of oil by about the same amount.

“This is the lessons of a basic course in economics. Where the price elasticity of supply is low, the duty shall be payable by the producer. ‘

He, too, fears that hostilities will not end with sanctions.

“This is going to be a long war. It doesn’t end on Victory Day and it doesn’t end in the summer. The Russian leadership is committed to defeating Ukraine. “