SEOUL, South Korea. When the United States and the European Union decided this year to cut Russian fossil fuel purchases, they hoped it would help Russian invasion of Ukraine so economically painful for Moscow that President Vladimir Putin would be forced to abandon it.
Now that prospect seems remote at best.
China and India, the world’s most populous countries, rushed to buy Russian oil in about the same amount that would go to the West. Oil prices are so high that Russia is now making even more money selling oil than it was before the war started four months ago. And its once-fluctuating currency has appreciated against the dollar.
Russian officials sneer at what they call a spectacular failure to intimidate Mr. Putin. And the economic pain that the oil boycott was supposed to cause is being felt not so much in Moscow as in the West, especially in the United States, where skyrocketing oil prices pose a serious threat to President Biden less than halfway through his term.
Some point out that the European oil embargo has not yet taken effect and say that the long-term effects of Russia’s economic ostracism due to the war remain a powerful factor in determining the fate of the country. These effects go far beyond the fossil fuel trade, slowing down Russia’s banking and other industries, but mostly the sale of oil and gas keeps the government and its military afloat.
“The situation is much better than the worst case, and probably even better than the base case,” Evgeny Nadorshin, chief economist at PF Capital in Moscow, said of Russia’s energy earnings. “Unfortunately, the most difficult period is just beginning.”
Whether Mr. Putin will now feel the financial courage to wage war indefinitely is an open question. But there are all signs that Ukraine and its supporters are preparing for a protracted conflict.
Better Understand the Russo-Ukrainian War
Iryna Vereshchuk, Deputy Prime Minister of Ukraine, issued an appeal to hundreds of thousands of people living in Russian-occupied parts of southern Ukraine to evacuate ahead of a potential Ukrainian counteroffensive.
And on Tuesday, the Biden administration sent Attorney General Merrick Garland on a surprise visit to Ukraine, where he announced the appointment of Eli Rosenbaum, a seasoned prosecutor known for investigating former Nazis, to lead US efforts to track down Russians involved in possible war crimes. in Ukraine. Mr. Putin categorically rejects any accusations of Russian atrocities in Ukraine, which he has long considered even an illegitimate country.
But in the short term, the United States and its Western allies have counted on economic sanctions, not criminal prosecution, to persuade Moscow to back down or at least reduce its ability to fight a war. At least for now, the tactic seems to have backfired, given growing demand in Asia for oil from Russia, the world’s third-biggest oil producer after the US and Saudi Arabia.
In May, China’s imports of Russian oil to China rose 28 percent from the previous month, hitting a record high and helping Russia overtake Saudi Arabia as China’s largest supplier, according to Chinese statistics. India, which once bought little Russian oil, now delivers more than 760,000 barrels a day, according to shipping data analyzed by market research firm Kpler.
“Asia saved Russia’s oil production,” said Victor Katona, an analyst at Kpler. “Russia, instead of falling further, is almost close to its pre-pandemic level.”
According to Rystad Energy, an independent research and business intelligence firm, sales of Russian oil to Europe fell by 554,000 barrels a day from March to May, but Asian refiners increased their deliveries by 503,000 barrels a day, almost one for one.
Although Russia is selling oil at a deep discount due to the risks associated with sanctions imposed in connection with the invasion of Ukraine, rising energy prices have offset this. Russia received $1.7 billion more last month than in April, according to the International Energy Agency.
It remains unclear whether Asia will buy all of the Russian oil once destined for Europe as the European Union seeks to shed its dependence on the Kremlin’s energy exports. But for now, the shift has allowed Moscow to maintain its oil production levels and undermine expectations that production will fall.
China’s purchases, in particular, underscored Mr. Putin’s support from his Chinese counterpart Xi Jinping, who has vowed to deepen cooperation with Moscow, whatever his fears about the war in Ukraine.
The combination of discounted Russian crude and higher gas station prices also means Indian refiners are making double the profits, analysts say. According to the Finnish Center for Energy and Clean Air Research.
Once refineries turn oil into diesel or gasoline, no one can tell the difference between the fuel they send to Europe and other countries from Russian oil. This means that Western motorists who think they are paying more for non-Russian fuel may be wrong.
“These molecules, many of them are Russian,” Jeff Brown, president of FGE, an energy consulting firm, said of refined oil products exported to the West.
High global demand for Russian oil and gas is prompting Russian officials to say that Western attempts to limit Russian exports have failed.
Alexei Miller, head of Russian energy giant Gazprom, quipped last week at an economic conference in St. , prices have risen “several times”.
“I will not distort the truth if I tell you that we do not hold evil,” he said.
This month alone, the Russian Finance Ministry estimated that the state treasury should have received $6 billion more in oil and gas revenues than expected due to high prices.
However, the sanctions are likely to hurt the Russian economy even more later this year. And while the recovery of Russia’s currency, the ruble, is partly due to the country’s surprising economic resilience, it also reflects tight government controls on capital flows and a sharp drop in imports to Russia.
Mr. Putin’s government has also drastically reduced its published budget data, making it difficult to quantify how much it spends on the war. Analysts say there is no evidence that Mr. Putin is under direct pressure – economic or otherwise – to end his military campaign.
But Mr Nadorshin said the data the government is releasing indicates it is trying to cut spending across the board. And evidence of equipment shortages in the Russian army, as volunteers struggle to deliver first aid supplies and other necessities to the troops, shows the limits of the Kremlin’s ability to fund the war effort.
“The government’s willingness to spend is clearly suffering, despite the bravado of official statements,” Mr. Nadorshin said. “It’s not hard to guess that not everything is going well with the acquisition of weapons.”
Victoria Kim reported from Seoul. Clifford Krauss from Houston and Anton Troyanovsky from Berlin. The report has been provided Mark Santora from Warsaw, Glenn Thrush from Washington and Rick Gladstone from New York.