After the Russian-Ukrainian War, Western nations responded to the conflict harshly by imposing sanctions on energy exports, the main source of revenue for the Moscow government. However, European nations are more dependent on Russian gas than the Kremlin is on its consumers when it comes to energy. Therefore, European states are at risk of entering a recession due to sanctions targeting Russia.
The main objective of Western nations was to restrict Russia’s imports of gas and oil. In this context, since February 2022, the European Union (EU) has decided to impose various sanctions on the Russian energy industry. Due to the impact of sanctions, European states, which imported 25% of their oil supply and 40% of their natural gas supply from Russia in 2021, are making an effort to reduce their energy purchases from Russia and turn to alternate sources.
There are claims that the sanctions, whose primary objective is Moscow’s exclusion from global markets and, indirectly, making it unable to bear the cost of the conflict in Ukraine, have failed because the fighting has continued into its seventh month. Also being debated is the fact that the sanctions are causing more damage to the economies of the EU countries.
On the other hand, despite the war and sanctions, Russia’s oil and gas export revenues continue to grow. Although the embargo, which prevents the import of 90% of Russian oil to Europe, will not go into effect until December 5, 2022, markets throughout the world are aware that Russia will divert the oil it cannot ship to Europe to Asian consumers, namely India and China.[1]
Moscow is trying to bypass the impact of the sanctions by encouraging import substitution. Due to China’s and India’s rising energy needs as well as their inclination against the unipolar world order by supporting Russia, it is easier for the Moscow administration to locate alternative markets.
Moreover, despite the sanctions, Europe is still the largest buyer of Russian oil because, before the oil embargo takes full effect and oil prices sharply rise, the Union’s member nations want to stock up inexpensive Russian oil in their depots.
Due to the high rate of oil production and the market’s limited supply, prices are rising. Therefore, Russia’s oil income has increased. Moreover, only a small increase rise in oil output has occurred under OPEC+, despite efforts by the West, particularly the United States (US), to pressure the Organization of the Petroleum Exporting Countries (OPEC), led by Saudi Arabia, to increase production. As a result, Russia, the world’s second-largest oil producer behind Saudi Arabia, has failed in its attempt to lower oil revenues.
It is well known that locating alternative suppliers for natural gas is more challenging than for oil. The Kremlin’s use of the “gas” card, which is a sore point for the EU, as a result of the oil sanctions has exacerbated the situation in the energy markets. As justification for blocking the flow of natural gas from the Nord Stream-I Pipeline, Russian President Vladimir Putin cited the G7 and EU’s intentions to impose a price cap on Russian oil and gas goods. He reacted as follows:[2]
“The price cap is another nonsense that will lead to further price increases in world markets, including Europe. A stupid move. We will not send any oil, natural gas, or coal if doing so would go against our contracts and best interests. The West is not in a position to impose terms to us. They should think rationally”
The Russian president’s remarks led to gas price manipulation and increased pressure on Europe’s energy infrastructure after the war. As we head into the colder months, rising energy costs have placed an additional pressure on the industrial sectors and households of the nations. In addition to the aforementioned situation, inflation also rose as a result of the war’s financial aid to Ukraine. Due to rising food and energy prices, inflation in the eurozone reached a record high of 9.1% at the end of August 2022.[3]
According to estimates, Germany, the EU’s largest economy and a country that depends on Russian gas to the rate of 55%, will see its GDP fall by 3% as a result of ceasing to import Russian natural gas.[4] Moreover, the weakening economy and growing inflation have strained internal policies among Union members and raised questions about support for Ukraine among the general public. For instance, 51% of Germans think sanctions harm Germany more than they do Russia.[5] People are organizing protests in the Czech Republic as well to call for the lifting of sanctions against Russia owing to increased energy bills.[6]
Given that Europe is currently experiencing the highest rates of inflation in the last forty years, the EU’s present policies have become paradoxical. The sanctions failed to reduce Russian revenues and resulted in Russia mobilizing more troops for Ukraine, threatening nuclear retaliation, and taking steps to annex Russian-occupied territories[7]. In other words, it had no effect on the course of the war.
To summarize briefly, it can be claimed that Western nations did not observe the impact they anticipated from sanctions; rather, Russia undermined its own economy as a result of its energy monopoly and Europe’s reliance on energy, particularly gas. At this point, it should also be clear that sanctions require time before they produce any results.
Since the beginning of the war against Ukraine, Russia has drastically restricted economic transparency and ceased publishing figures and data. Therefore, it has become difficult to assess the exact impact of the Western sanctions. In fact, it is asserted that the sanctions’ impact on the Russian economy is not insignificant since Moscow has taken to hide the impact by withholding international trade statistics.
It should be noted that, despite the sanctions put in place by European governments, the fact that the Russian economy remains stable, even if its transparency is called into question, undermines public support for the sanctions in Europe, which makes it challenging for the region to act collectively.
As a result, it can be argued that the policies the West put in place to address Russia’s attacks on Ukraine were unsuccessful. Additionally, opposing voices were heard from within the EU were heard even when the decision to impose sanctions was made. Furthermore, the specifics of the application of the price cap on oil have not yet been determined, and the member states’ objections prevented the implementation of a price cap on natural gas. This suggests that the EU’s ability to act in unison will get harder and harder every day.
[1] “Ukraine Crisis: Russian Oil Turns to Asia”, BBC, https://www.bbc.com/news/world-asia-india-60783874, (Date of Accession: 29.09.2022).
[2] “Putin Says Russia to Stop Supplying Energy If Western Price Caps Imposed”, Reuters, https://www.reuters.com/business/energy/putin-blames-germany-west-nord-stream-1-shutdown-2022-09-07/, (Date of Accession: 29.09.2022).
[3] “Euro Zone Inflation Hits Another Record of 9.1% As Food and Energy Prices”, CNBC, soarhttps://www.cnbc.com/2022/08/31/euro-zone-inflation-hits-another-record-of-9point1percent-as-food-and-energy-prices-soar.html (Date of Accession: 29.09.2022).
[4] “Germany Says it Cannot Completely Replace Russian Gas”, Anadolu Agency (AA), https://www.aa.com.tr/en/europe/germany-says-it-cannot-completely-replace-russian-gas/2675381, (Date of Accession: 29.09.2022).
[5] Ibid.
[6]“Thousands gather at ‘Czech Republic First’ Rally Over Energy Crisis”, The Guardian, https://www.theguardian.com/world/2022/sep/04/czech-republic-prague-protest-sanctions-energy-crisis-gas-russia, (Date of Accession: 29.09.2022).
[7] “Putin Mobilizes More Troops for Ukraine, Threats Nuclear Retaliation and Backs Annexation of Russian-Occupied Land” NBC News, https://www.nbcnews.com/news/world/putin-announces-partial-mobilization-russian-military-ukraine-war-rcna48585, (Date of Accession: 29.09.2022).
