The Slow Burn of Sanctions: How Russia is Adapting to Western Pressure
Despite assertions of critically important impact, the economic pressure exerted on russia through Western sanctions is proving to be a complex and evolving situation. While undeniably causing hardship, the measures are not delivering the swift, crippling blow initially anticipated, and Russia is demonstrating a remarkable capacity to adapt.
The energy sector, a primary target of sanctions, is experiencing clear strain. Russia is being forced to offer substantial discounts – reportedly between 30 and 40 percent – on liquefied natural gas exports to China, a clear indication of diminished bargaining power. However, the issue isn’t necessarily a reduction in volume of exports. A significant portion of Russian oil continues to flow to China via pipelines, specifically the more expensive ESPO crude, which is largely immune to US sanctions.
The more pressing problem lies in the logistical bottlenecks emerging in the global oil market. A growing number of tankers – at least eleven currently – are stalled off the coast of India, unable to unload their Russian cargo. This has contributed to a surge in oil stored on tankers worldwide, exceeding levels seen even during the height of the COVID-19 pandemic. Bloomberg reports Russian oil volumes held in tankers have risen by 16% sence late August,reaching 175 million barrels.
Adding to the complexity, a pattern of evasive maneuvers is developing. Tankers transporting Russian oil are increasingly disabling their tracking systems, suggesting attempts to obscure cargo transfers. Others are setting sail without designated final destinations, hinting at a growing reliance on shadow fleets and opaque trading routes.
While these disruptions are impacting Russia’s oil-related tax revenues – a decline of over 24% was recorded last month – the overall effect is somewhat mitigated by a shift in the composition of Russia’s budget. Oil revenues now represent less than a quarter of total income, down from 40% in recent years. As Vasily Astrov, a Russia expert at the Vienna Institute for International Economic Studies, points out, similar sanctions imposed earlier by the Biden management on Gazprom Neft and Surgutneftegaz had a limited long-term impact, as Russia successfully circumvented them.
Further sanctions,set to impact 80% of Russian oil production by November 21st,are expected to face similar challenges. Sergei Vakulenko,a former Gazprom Neft manager now at the Carnegie Russia Eurasia Center,argues that Russian oil companies are learning to navigate the new landscape. He emphasizes the importance of consistent enforcement of sanctions and the price cap, warning that prolonged pressure, while ultimately weakening the Russian economy, could also accelerate the progress of choice oil markets outside the western financial system, furthering the trend towards deglobalization.
Ultimately, the effectiveness of oil sanctions hinges on controlling global demand, a feat that remains elusive. As expert Benigni succinctly puts it, “Oil sanctions only make sense if you can control demand.But that is not possible so far.” The situation highlights the inherent difficulties in using economic pressure to achieve geopolitical goals, particularly in a globally interconnected energy market.