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Russian Energy Profits Undeterred by Sanctions

What’s happening?

According to the International Energy Agency (IEA), Russian oil revenues increased in May despite harsh sanctions imposed by the United States, the European Union, and other countries. 

The war in Ukraine caused a supply chain crunch and increased oil prices worldwide as countries sanctioned imports from Russia, the world’s third-largest oil producer. However, the strategy has backfired. Even though Russia’s oil exports have declined, global price spikes mean that its profits have increased, offsetting sanctions.

The IEA stated that Russian oil export revenues increased by $1.7B in May 2022 and are higher than they were pre-invasion. Data analyzed by the Center for Research on Energy and Clean Air determined that Russia earned record profits in the first 100 days of Ukraine’s invasion. Russian export prices are about 60% higher than they were in 2021 even though they’re now about 30% under international market prices.

Even with EU sanctions, 43% of Russian oil exports went to the EU in May. China increased its Russian fuel and oil imports by a quarter million barrels per day in May. According to The New York Times, India and the United Arab Emirates have also made up for EU reductions in terms of Russia’s oil export volumes.

Russian profits illuminate the challenge of isolating Russia from global trade. For example, US refined oil imports come from countries like the Netherlands and India, which use Russian crude. Ukrainian officials are calling on global leaders to completely cease trade with Russia.

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What’s the impact?

Russia’s fossil fuel exports are key to the country’s military buildup and invasion of Ukraine. In 2021, oil and gas supported 45% of Russia’s federal budget. Experts believe that growing revenues make the war very affordable and sustainable for Russia, which could influence Ukrainian losses in the coming months.

Analysts also say that Russia may continue offsetting global sanctions by finding other importers. This could impact the market share of Iran and Venezuela, two of Russia’s allies, causing a price war that would significantly shift geopolitical alliances. The American oil producer Chevron has already met with Venezuela’s government to negotiate more control over operations there, signaling warming relations with the West.

The geopolitical landscape is likely to evolve as the US seeks alternative crude sources to reduce oil prices. In talks with Gulf leaders this week, President Biden reportedly plans to prompt increased oil production from members of the Organization of the Petroleum Exporting Countries (OPEC). Reducing oil prices is crucial for the US, which is facing its highest inflation rate in 40 years. Experts are concerned that interest rate hikes, which the Federal Reserve uses to counter inflation, could send the US into a recession.

How can OSINT help?

Governments need accurate, up-to-date intelligence to understand the impacts of Russia’s energy export profits. This helps global leaders monitor Russian military activities, reevaluate sanctions strategies, and address the impact of the Ukraine war on global economies.

Much of these insights rely on classified sources, but publicly-available content from sources like social media also helps intelligence teams:

  • Monitor the evolution of Russian military resources and equipment as the country continues to fund its war machine.
  • Understand new developments and public sentiment in Russian-allied countries like Venezuela.
  • Understand Russian information tactics used to influence global populations in the country’s favor.

This open-source intelligence (OSINT) relies on a variety of online sources, from mainstream social media to regional defense forums and international social networks. To learn more about OSINT solutions and data sources for public sector intelligence, book a call with Echosec Systems.