How will the sanctions imposed by the US against "Rosneft" and "Lukoil" and the 19th package of EU sanctions affect the Russian economy? Energy expert Sergei Vakulenko is convinced that despite them, Putin has enough resources for war.
The US has imposed new sanctions against the two largest Russian oil companies "Rosneft" and "Lukoil", and the EU has announced the imposition of the 19th package of sanctions against Russia, banning the import of liquefied gas. Will these steps have an impact on Putin and can they make him end the war against Ukraine amid Russia's declining income from fuel sales? Energy expert Sergei Vakulenko is convinced that despite all these developments, Vladimir Putin will have enough resources to continue waging the war.
In an interview with DW, Vakulenko recalled that there was already a precedent for such sanctions against two other Russian oil companies - during the administration of Joe Biden. "And what happened? Nothing - they continued to trade oil in the same way after the initial shock for about a month. Now Trump may be more insistent on compliance with the sanctions, but there is no one to deal with it - against the background of the huge cuts made in the department that monitors the implementation of the sanctions. Add to this the fact that at the moment the US government is not working at all, after Congress failed to reach a consensus on the budget. It remains to be seen how effective these sanctions against the two Russian companies will be compared to the previous ones."
When should these sanctions formally begin?
Sergey Vakulenko: Formally in a month. The American sanctions authorities always give counterparties the opportunity to calmly sever their business ties with sanctioned companies. All contracts can be terminated immediately, but then payments should no longer go to the sanctioned companies, but to their blocked accounts, from which they will not receive money. That is, some of the sanctions have taken effect immediately. At the same time, pressure is being exerted on India and China to stop buying Russian oil. So far, it has not been a problem for India, China, and partly Turkey to buy oil from companies that were initially subject to sanctions.
Now the US dispute with India is multi-layered: because India does not want to buy American agricultural products, because Indian medicines are sold incorrectly in the US, etc. But the pretext for imposing higher tariffs on Indian goods is that India buys Russian oil. Although the US understands perfectly well that it is difficult for India to give it up and does not want to.
As for China, attempts are being made to exert even greater influence so that it also reduces its purchases of Russian oil. This is done through sanctions on the ports through which Russian oil passes, sanctions on the intermediaries who provide it. But so far there is no evidence that America is ready to impose sanctions on the Chinese national oil company PetroChina.
Winter is coming - how much will oil consumption increase this season?
Sergey Vakulenko: The peak of oil consumption is more likely in the summer. In winter, people travel and fly much less than in the summer. The consumption of heating oil is growing, but its share is not large. Gas consumption is growing much more.
And what about the "shadow fleet" - will the pressure on it increase against the backdrop of these sanctions?
Sergey Vakulenko: The EU has added 117 more ships to the list, which already has 500. Has this led to any changes for Russia? No. France threatened to stop the tankers and one was indeed detained. But it is said that this was not so much an attempt to combat the "shadow fleet" as a search for these tankers that drag their anchors along the bottom and cut cables. The coast guards of the countries through whose waters these tankers pass do not have the strength to detain all the vessels. And it is difficult to do anything legally against ships that travel peacefully and do not change their flag often. But the 19th EU package includes sanctions against the shipping registers of some countries that freely distribute their flags.
If Russia still has to reduce oil exports and domestic consumption does not increase, will it probably have to cut production - given that there is no special storage capacity?
Sergey Vakulenko: That's right. Russia only has what are called operational volumes for oil storage - tanks at ports and an operational reserve at refineries for several weeks of work. There are also large tanks, but they are not designed for long-term storage. Indeed, if demand falls, Russia will have to reduce production. However, now it is increasing it due to the agreements reached within OPEC+.
And what will this mean for "Rosneft" and "Lukoil", as well as for other producers such as "Gazprom Neft"?
Sergey Vakulenko: In proportion to the decrease in their sales, profits will decrease. The financial situation of Russian oil companies is not good anyway. The problem is that for these prices for Russian oil, the ruble is too strong, and for oil companies it would be beneficial for it to be weak. They received income in foreign currency at a high rate, converted dollars (and now yuan) into rubles and used these rubles to pay drilling companies. And now the ruble is expensive and the yuan earned has to be exchanged at a not-so-favorable rate. This is hitting the companies’ finances hard. If their profits also decrease, it will be even more unpleasant.
Can the US put even more pressure on Putin?
Sergey Vakulenko: There may be such levers, but they will already cost the US itself too dearly. For three years of war, the West was not ready for significant personal sacrifices and inconveniences. And now, perhaps, there really are no such measures that can be adopted in relation to Russia without significant problems, inconveniences and losses. However, there are probably additional steps on the escalation ladder.