Russian energy exports fell off in the second half of 2022 as G7 sanctions took effect and Russian countersanctions cut off Europe’s gas supply. China and India increased their purchases to offset some of the reduced sales to Europe and others, but not enough to fully replace the lost exports.
Because of higher energy prices, the monetary value of Russian energy exports grew in the first half of 2022 despite the loss of export markets. Higher prices provided a windfall to Russia’s energy sector. Western policymakers exempted oil, gas, and coal from initial sanctions regimes to shield their citizens from shortages and even higher prices. But EU policymakers also accelerated plans for conservation and reoriented energy purchases away from Russian suppliers throughout 2022, culminating in an EU embargo of Russian oil in December 2022 in parallel with the G7 price cap on Russian oil exports.
Europe’s pivot to alternative energy sources and President Vladimir Putin’s efforts to limit Europe’s energy supply contributed to Russia’s falling energy revenues in the second half of 2022. Russia’s exports to China and India surged, accounting for 46.5 percent of Russian energy exports by value in the second half of 2022, up from around 25 percent a year earlier, but not by enough to offset lost sales to Europe.
The effects of Western sanctions will compound over time. Europe’s embargo is undercutting Russia’s oil export earnings, and G7 sanctions are blocking Russia’s imports of key components needed by its military-industrial complex. Putin’s best hope is that G7 countries will soon tire of absorbing the costs of supporting Ukraine and volatile energy markets. Such retrenchment would only fuel further Russian aggression. The United States and its allies must sustain their military and economic support for Ukraine, expand sanctions against Russia, and bolster efforts to help fund Ukraine’s reconstruction.
This PIIE Chart is adapted from Jeffrey J. Schott’s Policy Brief, Economic sanctions against Russia: How effective? How durable?