johnson162_Patrick Pleulpicture alliance via Getty Images_oil Patrick Pleul/picture alliance via Getty Images

Learning to Squeeze Russia’s Energy Revenues

With fewer headlines about the war in Ukraine, public support for taking costly steps to sanction Russia is waning. In one crucial area, however, the G7 and the European Union have figured out how to impose significant harm on Russia in a way that also supports the global economy.

WASHINGTON, DC – As its full-scale invasion of Ukraine enters its 14th month, Russia is counting on the West to lose interest. With fewer headlines about the war, public support for taking costly steps to sanction Russia is waning. In one crucial area, however, the G7 and the European Union have figured out how to impose significant harm on Russia in a way that also supports the global economy. It is time to tighten this pressure on the Kremlin.

Before February 24, 2022, almost half of the Kremlin’s revenue came from taxes on oil and gas exports, and it raked in more money whenever global commodity prices increased. As the tanks rolled, oil prices surged, and cashflow for the Kremlin followed suit. Through much of 2022, Russia reaped an enormous windfall from the war premium on oil, effectively financing its invasion. Meanwhile, high oil prices posed a major threat to a global economy gingerly trying to emerge from the pandemic.

The problem was that Russia exported so much oil that conventional tools for imposing sanctions on an oil exporter wouldn’t work. Implementing a broad-scale embargo on Russian oil could have caused global oil prices to spike, hurting countries far and wide. And, to the extent that Russia would have been able to sell around the embargo, every barrel it exported would become more valuable, perhaps pushing revenue even higher than before.

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