Despite severe Western sanctions levied against Russia since its war with Ukraine began Feb. 24, Russia is expected to earn nearly $321 billion from energy exports in 2022, an increase of more than a third over 2021, Bloomberg News reported.
Moscow’s economy has survived a full month of sanctions and is emerging with a relatively strong balance sheet, as many of its strategic trading partners remain dependent on its energy exports, and the Institute of International Finance (IIF) said that Russia’s budget surplus may reach a record high of $240 billion.
“The single biggest driver of Russia’s current account surplus continues to look solid,” said IIF economists in a March 31 report cited by Bloomberg News. “With current sanctions in place, substantial inflows of hard currency into Russia look set to continue.”
The situation may change completely, however, in case of a full embargo on energy sales.
The IIF said that an energy embargo by the European Union and the leading industrial nations that form the G-7 could require Russia to cut more than 20 percent of its energy exports and lose $300 billion, depending on global price swings.
Key trading partners in Russia’s traditional export base, such as the members of the EU, are looking for alternative gas suppliers and are halting new energy contracts in condemnation of the war in Ukraine.
However, other trading partners who have remained loyal to Moscow, such as India and China, are getting steep discounts, with India paying $35 less per barrel than Russia’s pre-war prices, Bloomberg reported.
OPEC and the oil-producing states along the Persian Gulf have said they’re committed to the energy-production agreements that are already in place, rather than boosting output to address soaring prices in the wake of the Russia–Ukraine conflict.
Some EU countries such as Germany and Hungary, which are heavily dependent on Russian oil and gas, are reluctant to place energy exports on a list of sanctions, while other EU states are rushing to cut their dependence on Russia.
German industry leaders have said they oppose sanctions or political pressure that would prompt a full energy embargo on Russia.
German Finance Minister Christian Lindner said April 4 that Germany will reject a proposed EU embargo on Russian gas imports despite increasing pressure to impose sanctions on Russia’s energy sector over the escalating violence in Ukraine.
“We are dealing with a criminal war,” said Lindner before an EU meeting April 4 in Brussels.
“It is clear we must end as quickly as possible all economic ties to Russia. We must plan tough sanctions, but gas cannot be substituted in the short term. We would inflict more damage on ourselves than on them,” he said.
President Vladimir Putin of Russia demanded that all foreign payments from countries deemed “unfriendly” must now pay for Russian oil and gas by converting their currency into rubles, after Western nations froze Russia’s foreign exchange reserves.
The United States and the United Kingdom, both of which are less dependent on Russia for their energy needs than other nations, have imposed direct bans on energy imports from Russia.
Oil and gas account for about half of Russia’s total exports and contributed about 40 percent to its state revenues in 2021, Bloomberg News reported.
Despite the hesitancy of some customers to cut Russian oil exports, output fell 26.4 percent in the week ending March 26.
Goldman Sachs economist Clemens Grafe predicts a 20 percent decline of imports to Russia in 2022, which is double the expected 10 percent decline in exports, Business Insider reported.
Grafe also said that the Russian economy will shrink by 10 percent this year and see 20 percent inflation, its worst economic situation since the 1990s.