Russia said on Thursday that it was suspending, until the end of this year, exports of more than 200 products, including technological and medical equipment, vehicles, and agricultural machinery, but oil, gas, and coal - the main revenue stream for the government – were spared from the list.
The measure - which also includes the suspension of exports of electric equipment, railway cars and locomotives, containers, turbines, metal and stone cutting machines, video displays, projectors, consoles, and switchboards—“is necessary to maintain stability on the Russian market,” the government said in a statement.
“In addition, the Government has also suspended the export of several types of timber and timber products to states that are undertaking hostile actions against Russia,” it added.
Russia’s economy is becoming increasingly isolated because of the sanctions on its banks and central bank and the long list of companies leaving Russia or stopping sales in the country in the wake of Putin’s invasion of Ukraine. From the biggest international oil companies to consumer product makers and Apple and McDonald’s, everyone is quitting Russia.
Moscow is now retaliating against the sanctions the Western allies have imposed.
Yet, just as Europe has been wary of slapping sanctions on Russian energy, Russia is equally wary of cutting off its largest revenue - energy.
Crude oil and natural gas revenue accounted for 43 percent, on average, of the Russian government’s total annual revenue between 2011 and 2020, according to data compiled by the U.S. Energy Information Administration (EIA).
The Russian Energy Strategy to 2035 prioritizes the increase in energy exports and revenue, which is indicative of the central role hydrocarbons play for the Russian government, the EIA notes.
Russian energy exports, however, have already been struggling to find buyers, even before the United States banned imports of Russian energy on Tuesday.
The U.S. decision to ban imports of Russian oil is likely to worsen Russia’s struggles to sell its cargoes as buyers will avoid Russian crude even more than they have been doing so far, traders told Reuters earlier this week.
Although the U.S. ban will directly hit only a small amount of Russian oil exports, the indirect hit could be much higher because a growing number of traders and buyers will be shunning Russian crude due to “self-sanctioning” and reputational risks.
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By Tsvetana Paraskova for Oilprice.com
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Barring Russian banks from the global SWIFT payment system has forced Russia to use its own counterpart payment method (SPFS) for domestic bank usage and potentially as a way to circumvent Western sanctions by trading with its closest ally China.
Additionally, Russia’s trade with China has surged from $13 bn in the early 2000s to over $150 bn in 2021, making this a significant economic hedge that will be further boosted by the latest 30-year agreement between Moscow and Beijing for natural gas supplies. Moreover, Russia has agreed to settle its new gas deal with China in euros in an effort by the two countries to diversify away from the US dollar.
China’s increasing imports of Russian oil, gas and coal look set to provide Russia with the much-needed finance to weather the global storm of sanctions.
China’s tacit support of Russia in Ukraine and its ability to help Russia withstand Western sanctions will eventually get a quid pro quo from Russia when the time comes for China to restore Taiwan to the Mainland.
Moreover, the economies of both countries complement each other to a great extent. China, the world’s largest economy based on purchasing power parity (PPP, is wedded to Russia, the World’s superpower of energy. Also China, the world’s largest importer of food can get all its needs from Russia, the world’s largest producer and exporter of wheat and food materials.
Furthermore, China and Russia continue to work closely to undermine the petrodollar and enhance the petro-yuan in the global oil market with the ultimate objective of undermining the US economy and weakening the dollar’s impact on the global economy.
And contrary to claims that Russian energy exports have already been struggling to find buyers, a big chunk of Russia’s oil and gas goes anyway to China and another chunk is being bought discretely by oil traders in the Western capitalist world who worship money and who aren’t going to miss a chance of making more money by purchasing Russian crude.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London