As with hopes that Ukraine’s summer counteroffensive would quickly smash the Russian defenses, predictions that the Kremlin would soon be brought to its knees by the West’s sweeping sanctions have proved overly optimistic. So far, Russian troops dug in behind some of the world’s densest minefields have been resilient. For the most part, so has Russia’s economy, buffered by deep stores of natural resources.
In both cases, though, cracks in Moscow’s defenses are showing and, especially in the case of the Russian economy, they are widening. Now, there are critical points where the United States and Europe can apply more pressure.
The most promising of those are in the energy sector — whose revenue accounts for a majority of the Kremlin’s export earnings, and a sizable chunk of its federal budget and gross economic output.
In the months after Russian President Vladimir Putin unleashed his ruinous full-scale invasion last year, high crude oil prices provided a safety net for Russia’s overall economy. This year, following an array of Western sanctions, its oil and gas revenue is estimated to have been cut roughly by half, costing Russia in the range of $150 billion.
Along with capital flight, the loss of revenue has caused a steady decline in the ruble, which has lost more than a third of its value against the dollar over the past year. The central bank has responded with sharp interest rate increases, intended to stabilize the currency. Ordinary Russians, whom the Kremlin has tried to shield from direct consequences arising from the war, are starting to feel the pinch.
Much of the squeeze on Moscow’s energy exports has been applied by a price cap on Russian crude oil set by Washington and its European allies. The cap, imposed in December, works by requiring purchasers who still want to buy Russian oil to pay no more than $60 per barrel if they use cargo operators or insurers based in the European Union or other countries that have adopted the sanctions. That price is roughly a third lower than that of Brent crude, the world’s leading oil benchmark.
Predictably, Russia has tried to evade the price cap, with increasing success. On average, the price of Russian oil has lately risen above the $60 cap, though it remains substantially below the Brent benchmark. The danger now is that Russia will start to recover some of its energy revenue, which would extend its ability to wage its illegal and bloody war.
A broad group of experts organized by Stanford University, including economists and energy specialists, has proposed what might be a workable blueprint for tightening the energy sanctions. The group’s proposals include technical measures to stop Russia from using seaborne shipments of crude not subject to the cap — an unregulated “shadow fleet” of tankers that carries around a third of Russian seaborne oil. Perhaps the toughest measure to turn the screws on Russia would be to gradually lower the oil-price cap — eventually even by half.
That move has been pushed for months but resisted by some Western governments. The concern is that Russia might retaliate, possibly by slashing oil shipments or ending them completely, triggering a global energy crisis. Those fears are overblown.
For one thing, most economists estimate that Russia’s production costs for crude oil are just a fraction of the $60-per-barrel price cap, perhaps $15 or less. That means the Kremlin would still be assured of a profit if the West and its allies lowered the cap, revenue it would be unlikely to forgo amid the array of other economic challenges it faces.
For another, an attempt by Russia to deliver a retaliatory oil shock might have the most devastating impact in countries of the Global South, to which it has turned for diplomatic support as the war has dragged on. Moscow would be unlikely to risk negating those efforts by slashing oil exports deeply, which would drive up energy prices in the very countries it has courted so assiduously.
What’s more, Moscow would probably fail to achieve the desired effect were it to slash oil exports, much as its cutoff of gas exports to Europe in the months after last year’s invasion failed to weaken the staunch antiwar stance adopted by nearly every country on the continent.
No sanctions regime is watertight. Western sanctions against Russia will inevitably involve a cat-and-mouse game of enforcement and evasion. Without doubt, however, the Russian economy has been diminished and is in a much more fragile condition today than if sanctions had not been imposed. And the longer the West keeps them up, the more painful the sanctions will be for Russia and ordinary Russians, whose flagging support for the war might force Mr. Putin to reassess his fantasy of imperial revival.
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