Russian President Vladimir Putin’s atrocity train in Ukraine faces the world with a stark choice. Lawmakers and the public can boycott Russian energy entirely today, to stop the invasion immediately; or they may see Russian forces commit one outrage after another, drawing ever closer to EU territory.
KIEV – Blocking the foreign currency reserves of the Russian central bank was a brilliant move. Disconnecting some Russian banks from the SWIFT financial messaging system helped. And the measures against the wealth that Putin’s friends have abroad are fine.
But none of these sanctions stopped Russia’s invasion of Ukraine, nor will it, for one simple 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. Two weeks from its start, Western energy consumption continues to finance the Russian invasion of Ukraine, and the Russian elite is doing better than ever. There is no other way out: the only way to stop Russian President Vladimir 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 figures from the International Energy Agency, “Revenues from oil and gas-related export taxes and duties were 45% of the Russian federal budget in January 2022. At current market prices, the value of oil and gas Russian gas exports by pipeline to the EU alone equals $400 million a day. Total export earnings for crude oil and refined products currently amount to around $700 million a day.”
Although the Russian export of oil has suffered some alteration, the IEA indicates that for the moment the export of gas has not been affected. The price of Brent oil is now over $110 a barrel from $90 a barrel at the start of the invasion (and $80 at the end of 2021), so Russia has abundant foreign exchange earnings. Although Ural crude is being sold at a discount, the difference is less than the oil price increase, so Russian exporters still have a financial advantage.
Over the past month, the daily value of Russian oil exports has risen by about $100 million a day (calculation comes from multiplying the IEA’s estimate of Russia’s daily export by our estimate of the actual price increase of oil). crude from the Urals). In January 2022, Russia posted a current account surplus of close to $19 billion, about 50% more than is typical for January (most years the monthly surplus ranges from $9 to $12 billion). ).
Some US officials see the current policy of financial sanctions as undermining Russia’s oil capacity and favoring US strategic interests. But by putting more money in the pockets of oil producers, the US and its allies are having the opposite effect. The only alternative is to implement sanctions that immediately reduce the volume of Russian oil and gas exports.
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 five million barrels a day, but additional world supply may add up to at least three million. It is also possible and necessary to introduce energy conservation measures where appropriate.
Of course the European Union will have to do its part. But plainly speaking, it is only a matter of time. The EU can stop buying Russian gas now, to stop the invasion, or it can 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 the fact that it is financing Putin’s atrocities in Ukraine.
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.
It is true that 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 by Russian forces. 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.
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. Hundreds of thousands of Ukrainian children are already traumatized for life, and their suffering will only worsen if we do not stop Putin immediately.
The outpouring of support Ukraine and Ukrainians have received is staggering. Nearly two million refugees have been welcomed by individuals and governments across the EU; The United States, the United Kingdom and other countries are helping in many different ways. For all that we are very grateful.
But 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.
With the collaboration of Simon Johnson.