Russia’s military campaign is making significant and troubling advances in Ukraine, adding fuel to an already raging conflict as the global community reacts. The European Union has just approved its 19th package of sanctions. This new package includes a significant new ban on imports of Russian liquefied natural gas. The EU has already begun to act to stop funding Russia’s war against Ukraine. At the same time, Russia has always been clear that it does not seek an immediate ceasefire.
U.S. sanctions are supposed to be crippling Russia’s economy. This economy is extremely dependent on oil and gas revenue, which creates an enormous vulnerability to international public pressure. These revenues now account for more than one fourth of the Russian national budget. They’re one of the keys to continuing to fund the country’s daily military operations in Ukraine. Even Russia’s President Vladimir Putin has downplayed the effect of the sanctions. He called them “an unfriendly act” and said they will have no serious effect on the Russian economy.
As the war drags on, Russia’s oil and gas revenue is projected to suffer a significant drop, falling by 21% compared with last year. Future major consumers of Russian energy, such as India and China are already rethinking their purchasing plans. This $2,600 reduction takes place while they’re deciding on this crucial choice. This means that Indian refiners are poised to soon stop importing Russian oil in any meaningful quantity. Simultaneously, Chinese state oil majors have stopped their purchases amid increasing geopolitical tensions and economic instability.
Russia’s economic dependence on taxation of oil production not exports adds further complexity to its fiscal picture. A new dive in demand from Russia’s biggest buyers may deepen the pressure on its oil income. To reduce the blow of any implied future risks from U.S. secondary sanctions, Russia will have to sell its oil cheap on global markets.
Even with these economic pressures taking a toll, Russia has announced that its demands to end the war in Ukraine are still the same. This is partly because the Kremlin opposes such a ceasefire, arguing that it would only serve as an extended pause before hostilities start again. Time is running out, and tempers are flaring and speedily increasing. Russia has threatened that any attacks deep into its territory would draw a “very serious, if not overwhelming” reaction.
“This is, of course, an attempt to put pressure on Russia,” – Vladimir Putin [“Reuters”]
The international political and legal terrain around the conflict continues to shift as states react to the still-unfolding hostilities. This latest round of sanctions from the EU illustrates the extent to which Western countries are coming together to impose financial restrictions on Russia. Their ultimate aim is to degrade Russia’s military power and capacity.
Despite economic sanctions, the tide is turning on the battlefield. According to reports, on the ground Russian forces are making slow but steady progress into Ukraine’s territory. This advancement would make achieving a diplomatic end to the war even more challenging. Each side appears to be firmly planted in their stances, with no sign that a federal counter-offer is likely in the works.
As this conflict continues indefinitely, the international community will have its eyes open. How the Sanctions and Russia’s Military Actions Affect Global Energy Markets and they can change global geopolitics in surprising and harmful ways. The threat of additional escalation is still very real as both sides continue to threaten dire retaliatory actions.