Russia’s Oil Revenues Are Soaring

As I warned in Russia Is A Major Supplier Of Oil To The U.S., Russia could potentially benefit from the sanctions on its oil exports. Although Russia hadn’t yet invaded Ukraine when I wrote that article, I warned that if it did:

“Russian sanctions would be put in place, potentially reducing the available oil supply in a tight market. If Russia could still sell all the oil it could produce to countries that refuse to abide by the sanctions, it might do well financially with an oil price spike.”

We now have data in hand to confirm that the subsequent sanctions on Russia’s oil are in fact boosting Russia’s oil revenues.

Although the U.S. has stopped buying Russian oil, the challenge remains that Russia is one of the largest global producers and exporters of oil. There is no way to completely remove Russian oil from the market without sending oil prices much higher — perhaps to $200 a barrel.

Further, as oil prices go higher it increases the appeal of Russia’s oil. Right now, China and India, for example, have tremendous incentive to buy discounted Russian oil.

In other words, it is a classic catch-22. In attempting to punish Russia by keeping its oil off the market, Russia is enjoying a net benefit of higher oil revenues.

That’s not to say that other sanctions aren’t having the desired impact. By all accounts, life is becoming more difficult in Russia due to the many sanctions that have been put in place.

But in a world that is still heavily dependent on oil, the only way to effectively impact Russia’s oil revenues is do reduce global dependence on oil.

Source: https://www.forbes.com/sites/rrapier/2022/05/08/russias-oil-revenues-are-soaring/