Despite the ambitions of the West – the Russian treasury is full of revenues from raw materials

Russian producers have made their highest profits in a decade

In early March, as the United States and its allies unleashed a wave of sanctions against Russia, President Joe Biden stood in the White House and said they wanted to strike “a powerful blow at Putin’s military machine.”

But as the 100th day of the war in Ukraine approaches, this machine is still in full readiness. Russia is driven by a cash flow that could reach an average of $ 800 million a day this year – and that’s just the amount it receives for oil and gas.

For years, Russia has acted as a huge commodity supermarket, selling what the insatiable world needed: Not just energy, but wheat, nickel, aluminum and palladium. The invasion of Ukraine has prompted the United States and the European Union to rethink these relations. This is taking time, although this week the EU took another step by drafting a compromise agreement on Russian oil imports, Bloomberg reports.

Russia is far from affected by the sanctions that have made it a pariah in the developed world. Corporate giants have fled, with many giving up billions of dollars in assets and the economy heading into a deep recession. But for now, Putin may ignore the damage, as his coffers are overflowing with commodity revenues that have become more lucrative than ever, thanks to a spike in world prices caused in part by the war in Ukraine.

Even if some countries suspend or phase out energy purchases, Russia’s oil and gas revenues will be about $ 285 billion this year, according to estimates by Bloomberg Economics, based on forecasts from the Ministry of Economy. This will exceed the figure for 2021 by more than a fifth. If other raw materials are added, this will offset more than $ 300 billion in foreign reserves frozen as part of the sanctions.

EU leaders know they need to stop buying from Russia and indirectly fund a devastating war on Europe’s doorstep. But with all this ambition, national governments also know that there will be consequences for their own economies.

This week, they agreed to continue to enforce a partial ban on Russian oil, paving the way for the sixth package of sanctions after weeks of bargaining and division.

“There are always political restrictions on the use of sanctions,” said Jeffrey Schott, a senior fellow at the Peterson Institute in Washington. “You want to inflict maximum pain on your target and minimize the pain of your constituents at home, but unfortunately that’s easier said than done.”

In the United States, officials are discussing ways to increase financial pressure, possibly helping to impose a ceiling on the price of Russian oil or imposing sanctions on countries and companies that still trade with Russian companies that are subject to restrictions. However, such secondary sanctions cause deep divisions and risk worsening relations with other countries.

The United States has already banned Russian oil, but Europe is slowly getting rid of this dependence. This gives Moscow time to find other markets – such as the giants China and India – to limit possible damage to export earnings and financial reserves.

This means that money is flowing into Russia’s accounts, and financial data constantly reminds the West that dramatic change is needed. According to the International Energy Agency, only oil export revenues increased by 50% compared to the previous year. In the first quarter, Russia’s largest oil producers made their highest overall profits in nearly a decade, according to Moscow-based SberCIB Investment Research. And wheat exports continue – at higher prices – as sanctions against Russian agriculture are not even discussed because the world needs its grain.

The current account surplus – the broadest measure of trade in goods and services – more than tripled in the first four months of the year, reaching almost $ 96 billion. This figure, which is the highest since at least 1994, mainly reflects the rise in commodity prices, although the decline in imports under the weight of international sanctions is also a factor.

The ruble has become another symbol used by Putin to demonstrate his strength. After Biden called it “debris” when it initially collapsed in response to sanctions, it has since been backed by Russia to become the world’s best-performing currency against the dollar this year.

Putin is also trying to use Russia’s position as a raw material superpower. Amid fears of food shortages, he said he would allow exports of grain and fertilizers only if sanctions against his country were lifted.

“If the purpose of the sanctions was to stop the Russian army, it is not realistic,” said Janis Kluge, a senior fellow for Eastern Europe and Eurasia at the German Institute for International Relations and Security in Berlin. “It can still fund military efforts, it can still compensate for some of the damage that sanctions do to its population.”

One of the major shortcomings in sanctions against Russia is the willingness of other countries to continue to buy oil, albeit at a discount in some cases.

Indian refineries bought more than 40 million barrels of Russian oil between the start of the invasion of Ukraine in late February and early May. This is 20% more than the Russian-Indian flows for the whole of 2021, according to Bloomberg estimates based on data from the Ministry of Trade. Refineries are looking for private deals instead of public auctions to get Russian barrels cheaper than market prices.

China is also strengthening its energy ties with the country by securing cheaper prices by buying oil that is being avoided elsewhere. China has increased imports and is in talks to replenish its strategic crude oil reserves with Russian ones. And some Russian oil and coal sellers have tried to make it easier for Chinese buyers by allowing yuan deals.

“Most of the world is not involved in imposing sanctions,” said Wutter Jacobs, founder and director of the Erasmus Center for Goods and Trade at Erasmus University in Rotterdam. “Trade will continue, the need for fuel will be there,” and buyers in Asia or the Middle East will step up, he said.

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