SEOUL, South Korea — When the United States and the European Union passed this year to curb Russian fossil fuel purchases, they hoped it would help make Russia’s invasion of Ukraine so economically painful for Moscow that President Vladimir V. Putin would be forced to stop it.
That prospect now seems distant at best.
China and India, the world’s most populous countries, have flown in to buy roughly the same amount of Russian oil that would have gone to the West. Oil prices are so high that Russia is now making even more money from sales than before the war started four months ago. And the once faltering currency has appreciated against the dollar.
Russian officials grin at what they call a spectacular failure to terrify Mr Putin. And the economic pain the oil boycott was intended to inflict is echoing not so much in Moscow as it does in the West, especially in the United States, where skyrocketing oil prices pose a serious threat to President Biden less than halfway through his term in office.
Some point out that Europe’s oil embargo has yet to come into effect, saying that the long-term effects of Russia’s economic exclusion during the war remain a determinant of the country’s fate. Those effects extend far beyond the fossil fuel trade, hampering Russia’s banking and other industries, but it is largely the sale of oil and gas that keeps the government — and its military — afloat.
“Things are much better than the worst case scenario, and probably even better than the base case,” Yevgeny Nadorshin, chief economist at Moscow consulting firm PF Capital, said of Russia’s energy revenues. “Unfortunately, the most difficult period is only now beginning.”
Whether Mr Putin will now feel financially encouraged to continue the war indefinitely is an open question. But there is every indication that Ukraine and its supporters are continuing to engage in a protracted conflict.
Understanding the war between Russia and Ukraine better
Ukraine’s deputy prime minister Iryna Vereshchuk urged hundreds of thousands of people living in Russian-occupied parts of southern Ukraine to evacuate ahead of a possible Ukrainian counter-offensive.
And on Tuesday, the Biden administration sent Attorney General Merrick Garland on a surprise visit to Ukraine, where he announced the appointment of Eli Rosenbaum, a veteran prosecutor known for his investigations into former Nazis, to lead U.S. efforts to kill Russians. help detect those involved in possible war crimes in Ukraine. Mr Putin has categorically rejected all allegations of Russian atrocities in Ukraine, which he has long maintained is not even a legitimate country.
But in the short term, the United States and its Western allies had been counting on economic sanctions, not criminal charges, to convince Moscow to back down, or at least reduce its ability to continue the war. At least for now, that tactic seems to have taken off, given the rising demand in Asia for oil from Russia, the world’s third largest oil producer after the United States and Saudi Arabia.
In May, Chinese imports of Russian oil rose 28 percent from the previous month, a record high and helped Russia overtake Saudi Arabia as China’s largest supplier, according to Chinese statistics. India, which once bought little Russian oil, now brings in more than 760,000 barrels a day, according to shipping data analyzed by Kpler, a market research firm.
“Asia has saved Russian crude oil production,” said Kpler analyst Viktor Katona. “Russia, instead of falling further, is almost close to its prepandemic levels.”
According to Rystad Energy, an independent research and business analysis firm, Russian crude sales to Europe fell 554,000 barrels per day from March to May, but Asian refineries increased their decline by 503,000 barrels per day — nearly a one-to-one replacement. .
Although Russia is selling the oil at a steep discount due to the risks associated with the sanctions imposed following the invasion of Ukraine, rising energy prices have compensated. Russia took in $1.7 billion more last month than in April, according to the International Energy Agency.
It remains unclear whether Asia will buy all of the Russian oil once destined for Europe, as the European Union tries to rid itself of its dependence on the Kremlin’s energy exports. But for now, the shift has allowed Moscow to maintain oil production and confuse expectations that its production would decline.
China’s purchases in particular have underlined the support Mr Putin enjoys from his Chinese counterpart, Xi Jinping, who has pledged to deepen cooperation with Moscow, regardless of his misgivings about the war in Ukraine.
The combination of discounted Russian crude and higher prices at the pump also means Indian refineries are benefiting twice, according to analysts. Some of the oil products exported by India have been shipped to the United States, Britain, France and Italy, according to the Finnish Center for Energy and Clean Air Research.
Once the refineries convert oil into diesel or gasoline, no one can tell whether the fuels they ship to Europe and elsewhere come from Russian crude. That means that Western drivers who think they are paying more for non-Russian fuel could be mistaken.
“Those molecules, a lot of them are Russian,” said Jeff Brown, the president of FGE, an energy consultancy, of the refined oil products exported to the West.
High global demand for Russian oil and gas is prompting Russian officials to declare that the West’s efforts to curb Russian exports have failed.
Aleksei Miller, the head of Gazprom, the Russian energy giant, joked at an economic conference in St. Petersburg last week that he had no ill will against Europe, because even as Russian natural gas imports into the continent rose by “several tens of percent,” Prices rose ‘multiple’.
“I won’t twist the truth if I tell you we don’t hold a grudge,” he said.
This month alone, Russia’s finance ministry estimated that the high prices would send the state treasury to receive $6 billion more in oil and gas revenues than expected.
Still, sanctions later this year are likely to hurt the Russian economy even more. And while the revival of the Russian currency, the ruble, is partly due to the country’s surprising economic resilience, it also reflects strict government controls on capital flows and plummeting imports into Russia.
Mr Putin’s government has also greatly reduced how much budget data is made public, making it difficult to quantify how much it spends on the war. Analysts say there is no evidence that Mr Putin is under direct pressure – economic or otherwise – to wind down his military campaign.
But Mr Nadorshin said the data the government is releasing indicates that it was trying to cut spending across the board. And evidence of deficiencies in the Russian military’s equipment, with volunteers rushing to supply first aid equipment and other basic items to the troops, shows the limits in the Kremlin’s ability to fund the war effort.
“The government’s willingness to spend money is clearly suffering from the bravado of the official statements,” said Mr Nadorshin. “It’s not hard to guess that when it comes to purchasing weapons, not everything is going well.”
Victoria Kim message from seoul, Clifford Krauss from Houston and Anton Trojanovskic from Berlin. Reporting contributed by Marc Santora from Warsaw, Glenn Thrush from Washington and Rick Gladstone From New York.