Russia’s oil and gas strategy is no longer working. Global prices are simply too low to finance its invasion of Ukraine.
Russia, the world’s third-largest oil producer, is facing significant oil shortages domestically. The Kremlin announced on Monday they would be temporarily halting gasoline exports for six months starting on March 1st.
Oil and gas exports make up 30% of Russian revenues and a significant share of the country’s GDP. Russia controls some of the world’s largest natural gas and crude oil reserves.
And yet, Russia is facing significant shortages in the domestic market, mainly caused by low prices and slow demand. “In order to offset excessive demand for petroleum products,” Deputy Prime Minister Alexander Novak reported through a spokeswoman, “it is necessary to take measures to help stabilize prices in the domestic market.”
Moreover, Russian oil facilities have been targeted by Ukrainian missiles, disrupting the Kremlin’s reserves of fossil fuels even further.
This is not the first time Russia has tried to manipulate global oil demand. Last year, the Kremlin colluded with Saudi Arabia to cut oil production and artificially increase prices. Overall, oil exports were reduced by 1.6 million barrels per day, roughly 1.6% of global demand.
Since then, however, oil prices have slowed down significantly, and the G7 price cap imposed on Russian oil further damaged the Kremlin’s revenues.
A new phase in the energy war
When Russia initiated its full-scale invasion of Ukraine, European nations came together to halt imports of Russian gas. Unfortunately, the European economy relied immensely on Russian gas and oil, and its sudden stop caused great damage to its industry.
Energy prices spiked, causing widespread inflation and a general economic crisis.
Two years into the war, however, the tide is slowly turning. Europe found new gas suppliers, namely Norway, the United States, and African nations, making prices cool down to pre-war levels.
Russia, on the other hand, is seemingly unable to enhance demand. According to the International Energy Agency (IEA), demand for fossil fuels should peak in this decade, and growth in 2024 should decrease by 1 million barrels per day. If true, that would render the Russo-Saudi sabotage almost useless.
China and India, which replaced Europe as the largest importers of Russian oil, are doing so at a bargain. Beijing and Delhi know that without them Russia would be economically devastated, and are taking advantage as best they can.
Even after the war, it’s highly unlikely Europe will ever purchase oil and gas from Russia ever again. “The era of 30+% share of Russian gas is over and will not return, whatever the outcome of the war and whoever presides in the Kremlin,” analyst Jonathan Stern said.
Whatever the outcome of its illegal invasion of Ukraine, Russia needs a radical economic shift.
