Paying your blue for oil and gas to hit Putin, does it work?

There are two things that go against each other, explains Raoul Leering, head of international trade research at ING.

On the one hand, there is the positive effect on the Russian treasury of the higher price of gas and oil. On the other hand, there is the negative effect of the contraction of the Russian economy due to Western sanctions, Leering says.

Take advantage of expensive oil and gas

Russia exported $ 37.6 billion in April, according to CEIC Data (which maintains records), more than the imported one. That was almost double the previous months.

The country benefits from high oil and gas prices, explains Albert Jan Swart, economist at ABN Amro. And oil and gas revenues account for 40 to 45 percent of Russia’s treasury revenues, Leering said.

Oil revenues used to be important, but the sharply increased gas price now also adds up nicely to revenues, according to Lucia van Geuns, energy expert at The Hague Center for Strategic Studies (HCSS).

Russia’s oil and gas production has fallen somewhat recently. Western countries buy less and it is not fully compensated because more is sold to India and China, among others.

Negative effect of sanctions

In addition, Western sanctions hit Russian industry and the wider economy, Swart says. “The country is losing a lot of access to technology and parts, and at some point you will suffer from this. For example, due to lack of parts, you can no longer repair machines.”

In addition, high fuel prices erode the purchasing power of Russian consumers, allowing them to spend less. And that affects tax revenue, Leering adds. In addition, in a shrinking economy, less oil will also be sold in Russia itself in the coming period, which will lead to fewer remittances to the Russian state, Leering says.

The IMF therefore believes that Russia’s economy will contract by 8.5 percent this year. ING goes even further and assumes a decline of 10 to 15 percent.

cards vs. long-term

In the short term, we are not yet able to hit Putin’s coffin, says Leering. In that case, the positive effect of higher revenues from the sale of oil and gas still dominates. As a result, revenue for the Russian state will increase by about 15 percent.

But in the long run, it will be offset by lower tax revenues due to the recession he expects. Putin’s war Christians may still be well stocked, but the Russian economy will get into trouble, Leering concludes. “So the boycott has an effect on the resources available for the war.”

‘Losing European market’

Van Geuns is also particularly gloomy for Putin in the medium and long term and therefore believes that European consumers will influence him. “Russia is going to miss an incredibly important oil and gas market with Europe.”

In addition, oil tankers are now often further along the road because more is being sold to China and India. Because fewer tankers are available, sometimes more oil must be stored before it can be transported. And when stocks are full, production from older fields in western Siberia must be reduced or even shut down.

But they are harder to get started again later, and Russia does not have the necessary technology for them. It also makes it harder to develop new oil fields, says Van Geuns.

Ural oil

The price of Russian Ural oil is now around $ 94 per barrel. barrel, significantly more than the $ 44 that the Russian state needs to balance its budget, Leering said. The price of oil has risen sharply in recent months, due to the uncertainty in the market.

Russian oil is also a lot cheaper than brent oil, which is the oil used as a benchmark in Europe. There has always been a price difference that has to do with quality, Van Geuns explains. But now the difference is even greater. This is because countries that now want to buy oil from Russia are able to negotiate a significant discount, because Russia still has to get rid of its oil.

Leave a Comment