In a recent publication, the sanction strategy imposed by the EU and USA was analysed. However, does this strategy is effective enough to make the EU and the USA not pay double the price?

Analysts at the European company Consultancy recently estimated that waging war against Ukraine costs Russia about $ 20 billion. day.

Russian financiers and experts interviewed on anonymity by The Bell say that Russia can afford to finance the war against Ukraine and fulfil social obligations to Russian citizens for 1.5-2 years, taking into account the effect of sanctions already imposed.

What contributes to this:

• Oil and gas profits. Currently, experts predict that in 2022, Russia’s oil production will decline by 7-8%, and exports of oil and petroleum products will fall by 10-12% in physical terms (about 1 million barrels per day). However, the price of Urals oil is expected to increase by at least 10%, even at a discount. Unless Western countries abruptly abandon Russian oil and gas, the average annual price of Russian Urals oil, even taking into account the discount (now the Urals discount to North Brent is $ 40 per barrel) and the reduction in physical exports will average $ 70-75 per barrel. This allows the Kremlin to finance all expenditures for up to 2 years without any problems, including waging war against Ukraine and indexing social benefits for the Russian population.

• The budget surplus in 2021. The surplus for 2021 amounted to more than 500 billion rubles or 0.4% of GDP. The budget for 2022 is formed taking into account the price of the Urals $ 44.2 per barrel and the average exchange rate of 72.1 rubles / $. Based on these indicators and current trends, if the federal budget deficit is small, it will be insignificant and the Russian Finance Ministry will be able to cover it, for example, with the National Welfare Fund (a similar case was used in the Covid-19 pandemic in 2020).

• Reserves of the Russian Federation Excluding borrowing, Russia’s reserves account for 6-7% of GDP, which is enough to support an increased military budget and mitigate the effects of sanctions on business and the public through government anti-crisis programs.

Thus, as long as Russia has the opportunity to sell oil as well as gas (for which prices are expected to rise), even at smaller and discounted prices, it has enough financial resources to support its economy and population in a protracted war against Ukraine.

Problems with the purchase of components for the military-industrial complex may be more likely than problems with the availability of financial resources.

The introduction of an EU embargo on Russian energy would be one of the most powerful tools to curb Russia’s aggressive actions against Ukraine and limit their time.

According to the Spanish economist, professor, and member of the European Parliament Luis Garicano, the EU has the ability to relatively quickly completely replace the supply of oil and, above all, gas from Russia to other sources.

Thus, according to the organization “Europe Beyond Coal”, from February 24 to April 25, the EU imported energy from Russia for 41, 168 million euros, of which 26.627 million euros were paid for gas. According to Garicano, the statements of a number of European leaders about the impossibility of giving up Russian gas may be politically motivated, as Europe has enough options to diversify its supply in full from its own canned sources and by increasing LNG supplies from other importers.

Instead, so far we see the attempts of some EU countries to live in the old paradigm, assuming that the war against Ukraine is a temporary local situation, albeit with global resonance, but a local dimension of the conflict.

Despite the restrictions, Russia increased oil supplies to Europe by tankers in April to 1.6 million barrels per day, compared with 1.3 million barrels per day in March. The increase in export under sanctions is due to another use of the “Iranian scheme”: up to 40% of oil tankers now leave Russian ports marked “destination unknown”, then the sea is mixing oil with another producer and it is no longer considered Russian.

According to the Primary Vision Network, the European Union (EU) imports about 11 million barrels of crude oil and petroleum products every day. Imports from Russia to the EU average 2.2 million barrels per day, and oil products – 1.2 million barrels.

At the same time, against the background of sanctions, oil prices are rising on the world market. Leading investment companies are already making economic forecasts for the end of 2022 based on the price of oil at $ 130 per barrel. In this situation, the profits of Russian companies from the sale of hydrocarbons are expected to increase significantly.

According to some estimates, Germany alone can pay Russia an additional € 3 billion for Russian oil and € 8 billion for gas by the end of the year.

This situation allows the Russian leadership to wage war on Ukraine “to exhaustion.” But at the same time, Europe is becoming an object of depletion.

The Kremlin has already openly demonstrated that the war against Ukraine is an undermining of the West as a more successful model of life, compared to which Russia’s authoritarian model has proved uncompetitive, both in terms of technological and economic development and in terms of quality of life.

In fact, the EU, without the political will to take radical steps to stop Russian aggression, is forcing Europeans to pay double the price – both for maintaining dependence on Russian energy (including through circumvention schemes) and for continuing the effects of Russian aggression (including negative ones). macroeconomic trends, food and logistics problems), which is actually a vicious circle.

The duration of Russia’s aggressive policy is determined not so much by political or military resources as by its ability to finance the costs of the war while smoothing out the negative effects of the sanctions already imposed on its population. The key to blocking the cash flow that is fueling Russian aggression is now in Europe’s hands. With each postponement of the necessary surgically decisive action to stop the aggression, Europeans will be forced to pay more and more money to Russia. And Ukrainians – to pay for the indecision of partners with their lives.

Oleksii KHARCHENKO,

Expert for the Institute of Information Security for “Ukrainian line”