How are oil prices preventing full blown sanctions on Russia?

Updated: Mar 19

The Ukraine- Russia war is an going to be important event in the 21st century. The west reacted with the set of economic sanctions to put pressure on the Russian war machine. This war has skyrocketed oil prices with Brent crude rising above $100 barrel for the 1st time since 2014. Experts warn that the prices could further go upto $130 because of the going conflict.

One crucial part to note about the sanctions are that they have not been targeting to stop the the oil trade of Russia with the world. In fact, Natural gas flowing from Russia to Europe jumped 38% on 25th Feb. In this blog we will understand what is preventing west from going full blown energy sanctions on Russia.

Russia is one of the largest supplier of oil, natural gas, and hard coal to the European union. The figure shows the huge dependence of EU on Russia for petroleum and natural gas.

It provides 40% of natural gas to the European union. It is the 3rd largest producer of Petroleum after USA and Saudi Arabia. It is the 2nd largest producer of dry natural gas in 2020 only second to USA. Considering this heavy dependence of Europe on Russia for energy it is hardly a

surprise that the sanctions weren’t targeted at the energy exports, one of the main sources of revenue for Russia.

The sanctions placed by the West has been tailored to prevent the global price rise of oil and damaging their own economies. Two of Russia’s largest bank Sberbank and VTB has been sanctioned by US but what’s interesting to see here is that these sanctions provided exemptions on trade of oil, natural gas. Russian bank Gazprombank is the 3rd largest bank in the country and is a key player in the oil and gas payments. This bank is excluded from sanctions. This was done to facilitate the trade of oil and gas from Russia by Europe. Any further sanctions specially on this sector will again skyrocket the already rising oil prices meaning more revenue for Russia and increasing inflation around the world. Russia could respond by turning off gas to Europe further causing further massive outrage.

It is estimated that if the Russian gas supply is disrupted then the existing stock will last Europe this winter, but they would have to spend time in spring and summer restocking the supply from other suppliers keeping the prices and inflation high. Without Russian gas Germany may be forced to reconsider its decision to phase out it’s dependence on coal by 2030 and extend the life of the 3 nuclear powerplants.

Deep trade relationships between Russia and west in the post-Soviet era and Russia’s power in the global oil market has made it difficult for the west to impose stricter sanctions.


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