None of the economic sanctions stopped the Russian invasion of Ukraine, nor will itFor one reason: Russia continues to export oil and gas. In fact, the war made them more expensive, thus benefiting the most important sector of the Russian economy.
So a week after it started, Western energy consumption is still financing the invasion, and the Russian elite is doing better than ever. The only way to stop Putin’s aggression is to impose a comprehensive boycott on all Russian energy-related products.
These comprise the bulk of Russian exports, in two main forms: gas to Western Europe, which is transported by pipeline and paid for under long-term contract, and oil to international markets, which is mostly traded on spot markets. (spot).
According to the International Energy Agency, “oil and gas-related export tax and duty revenues were 45 percent of the Russian federal budget in January 2022. At current market prices, the value of Russian pipeline gas exports to the EU alone is equivalent to $400 million a day. Total export revenues from crude oil and refined products today amount to around 700 million dollars a day”.
(Also read: What is known about the state of the Zaporizhia nuclear power plant in Ukraine?)
Although Russian oil exports have been affected, the IEA indicates that, for the time being, gas exports have not been affected. In the last month, the daily value of Russian oil exports increased by about $100 million per day (calculation comes from multiplying the IEA’s estimate of Russia’s daily export by our estimate of the actual price increase of crude of the Urals). In January 2022, Russia posted a current account surplus of close to $19 billion, about 50 percent more than is typical for January.
The first step in a comprehensive boycott of Russian energy may be for the United States to impose full sanctions, including minor ones, on all Russian oil and gas exports.
The United States and its allies are achieving the opposite effect. The first step in a comprehensive boycott of Russian energy may be for the United States to impose full sanctions, including minor ones, on all Russian oil and gas exports. The world price of oil will increase, but if the sanctions are strictly enforced, the increase will not benefit Russian producers. The IEA predicts that in this scenario there will be a rapid increase in world oil production; Russia exports 5 million barrels a day, but additional world supply may add up to at least 3 million. It is also possible and necessary to introduce energy conservation measures where appropriate. The European Union will have to do its part. But, simply speaking, it is a matter of time.
(You may be interested: The UN approves a commission to investigate Russian war crimes in Ukraine)
The EU can stop buying Russian gas now, to stop the invasion, or wait a month, until several thousand more people have died and horrendous photos of civilian casualties flood the news channels. Sooner rather than later, Europe will no longer be able to tolerate financing Putin’s atrocities.
The IEA has a reasonable plan for freeing Europe from its dependence on Russia, and a Bruegel team has published significant proposals on how to get through the next few months without Russian gas. Every policymaker in Europe needs to address this issue without delay.
The Europeans will have to make difficult decisions, in particular how to finance an immediate abandonment of Russian gas. But think about the decisions that are being made in Ukraine to protect people’s lives and prevent the biggest humanitarian disaster Europe has seen since World War II.
Europe will not be the only one affected either. For example, Ukrainian agriculture cannot hold out much longer: it is impossible to plow or plant seeds under attack. The result will be higher global food prices, as Ukraine is the world’s fifth largest exporter of wheat, and this will have a major impact on budgets and poverty levels in low-income countries.
(Also: The companies that have suspended their operations in Russia after the invasion)
Some people in Europe will need help paying for heating, and may face other economic costs from what Putin is doing. But compare this to the situation of millions of Ukrainians who are already struggling to get food, clean water and essential medicine, and to avoid being killed by a bullet or missile.
It’s time to face the harsh reality that Putin and his friends are out of control. The world can implement a total boycott of Russian energy right now to stop the invasion immediately, or it can continue to watch Russian forces commit one atrocity after another, moving a little closer to the territory of EU countries every day.
Nobody in the world should buy Russian energy; doing so must carry a stigma worse than blood diamonds. The world is giving weapons and encouragement to a violent and uncontrollable monster. This can’t go on.
OLEG USTENKO*
© Project Syndicate
* Economic Advisor to the Ukrainian President, Volodymyr Zelensky, since May 2019.
** With the collaboration of Simon Johnson.
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