How Russia Makes a Mockery of US Sanctions in One Picture
Dec 29, 2023
Unprecedented US and EU sanctions against Russia have had no impact on Russia’s oil exports or revenue. Who’s the beneficiary?
Reuters reports Russia Exports Almost All its Oil to China and India
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Almost all of Russia’s oil exports this year have been shipped to China and India, Deputy Prime Minister Alexander Novak said on Wednesday, after Moscow responded to Western economic sanctions by quickly rerouting supplies away from Europe.
Russia has successfully circumvented sanctions on its oil and diverted flows from Europe to China and India, which together accounted for around 90% of its crude exports, Novak, who is in charge of the country’s energy sector, told Rossiya-24 state TV.
He said that Russia had already started to forge ties with Asia-Pacific countries before the West introduced sanctions against Moscow following the start of the conflict in Ukraine in February 2022.
“As for those restrictions and embargoes on supplies to Europe and the U.S. that were introduced… this only accelerated the process of reorienting our energy flows,” Novak said.
He said that Europe’s share of Russia’s crude exports has fallen to only about 4-5% from about 40-45%.
“The main partners in the current situation are China, whose share has grown to approximately 45-50%, and, of course, India…Earlier, there basically were no supplies to India; in two years, the total share of supplies to India has come to 40%,” Novak said.
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Oil Demand Did Not Change
The numbers are believable. Oil demand certainly did not fall. All the sanctions did was force a shift in global supply chains.
There was a cost to Russia to shift supply chains, but there was also a cost to Europe and the US as well.
The increased costs meant a higher price of oil, for everyone.
Buyer’s Cartel Silliness
The number of economists promoting a buyer’s cartel to suppress the price of Russian oil (and only Russian oil) only was stunning.
I laughed at the idea when it was proposed on June 28, 2022 in A Laughable Explanation of the G7 Oil Price Buyers’ Cartel Emerges
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The agreement, reached in the early hours of the third day of the G7 summit at Schloss Elmau in the Bavarian Alps, follows growing frustration among Western countries that their embargoes on Russian oil have had the counterproductive effect of driving up the global crude price. This has led to a situation where Moscow ends up earning more money for its war chest and where oil market reactions help drive runaway inflation.
The statement from the leaders ultimately identified this specifically as a preferred choice. “We will consider a range of approaches, including options for a possible comprehensive prohibition of all services, which enable transportation of Russian seaborne crude oil and petroleum products globally, unless the oil is purchased at or below a price to be agreed in consultations with international partners,” the statement said.
Root of the Stupidity
The G7 does not want Russia to sell any oil but if they succeeded, the price has to rise unless production picks up elsewhere or demand drops.
Rather than admit economic fundamentals, G7 leaders, especially Biden and Macron keep doubling down on dumber and dumber ideas.
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Despite the obvious stupidity of the scheme, some prominent economists backed the idea.
Central Bank Buy-Ins
Treasury Secretary and former Fed Chair Janet Yellen signed off on the cartel idea.
Former ECB president Mario Draghi also pushed the idea.
Insurance Scheme Backfires
The next not so brilliant Western sanction scheme was to deny insurance to ships carrying Russian oil.
Russia responded by buying Greek ships and then transporting oil without insurance on its own ships instead of paying others. It unloaded oil in the middle of the night to large Chinese oil tankers.
Not having to pay for insurance coupled with using its own ships helped Russia’s profits even if the price Russia received was slightly smaller.
Sanctions Don’t Work Because They Create New Markets
On September 19, 2023, I commented Lesson of the Day: Sanctions Don’t Work Because They Create New Markets
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Foreign Policy: “Since Russia’s invasion of Ukraine, Greece’s mighty shipping sector has continued to earn good money shipping Russian oil. But Greek shipowners have discovered an apparently even more lucrative source of revenue: selling the ships themselves to mysterious buyers linked to Russia. One publication has declared that a “Great Greek Tanker Sale” is taking place, and no price seems too high for a secondhand tanker. But the formerly Greek ships are entering a Hades-like shadow economy.”
Lesson Number Two
Countries, political leaders, and market makers act in their best interest.
It is in the best interest of Greek shippers to sell ships so they do. It is in the best interest of India and China to buy Russian oil and Greek ships so they do.
It is in the best interest of Dubai middlemen to make a market in ships so they do.
What this boils down to is simple: It is the best interest of middlemen in Greece, Russia, India, China, and Dubai to tell Biden to go to hell, so they do.
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New White House Fact Sheet
Despite a perfect track record of failure, On December 22, 2023 a White House Fact Sheet explains Biden Administration Expands U.S. Sanctions Authorities to Target Financial Facilitators of Russia’s War Machine
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Today, President Biden signed a new Executive Order (E.O.) that strengthens U.S. sanctions authorities against financial facilitators of Russia’s war machine. The E.O. makes clear to foreign financial institutions that they risk losing access to the U.S. financial system if they facilitate significant transactions relating to Russia’s military industrial base. The E.O. also provides authority to broaden U.S. import bans on certain Russian goods.
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What did Biden Do?
He blocked diamond imports and seafood imports.
Yeah, like that will have Russia crawling on its knees. Is anyone buying Russian seafood now other than China?
Indian Envoy Meets With Putin, Bypassing Western Pressure
On December 27, the New York Times reported Indian Envoy Meets With Putin, Bypassing Western Pressure
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President Vladimir V. Putin on Wednesday met with the Indian foreign minister at the Kremlin, highlighting Russia’s attempts to break through its isolation from the West by pivoting to an increasingly powerful Asian nation.
Despite the Biden administration’s efforts to make supporting Russia costly, American officials have avoided open criticism of India. Instead, President Biden and others have courted Mr. Modi, even welcoming him to a state dinner over the summer.
That courtship has continued even after American law enforcement officials accused Indian officials in November of plotting the assassination of an American Sikh activist in the United States.
New Delhi is heavily reliant on Russia for the largest part of its arms imports and Moscow has helped India to build nuclear and space capabilities from scratch.
“Typically, defense, nuclear and space are collaborations you only do with countries with whom you have a high degree of trust,” Mr. Jaishankar had told members of the Indian diaspora in Moscow on Tuesday.
During Mr. Jaishankar’s visit on Tuesday, India and Russia agreed to the construction of future power-generating units of the Kudankulam nuclear power plant in southern India, which is being built with assistance from Russia. Construction on the plant began in March 2002. It is expected to start operating at full capacity in 2027
What Does Russia Need?
That question came up in response to my post There Were Zero Takers for Offers to Pay for Oil in Indian Rupees
Russia does not need gold. Russia needs PARTS! All kinds of parts, computers, microchips, cars, etc., anything it is not manufacturing.
Bonus Geopolitical Lesson
Russia especially needs computers and microchips. China and India need oil. Neither gives a damn, nor should they, about US sanctions.
Russia now gets parts from China and India in return for oil. Russia used to get parts from the EU and US. This is how badly sanctions have failed.
Here’s a flashback hoot from April 13, 2022: Janet Yellen Warns China on Russia and Creating a Bipolar Global Financial System
Hello Janet Yellen, who precisely was it that pushed China and and now India into Russia’s arms?
Both Trump and Biden believe they can set policy for the whole world. How has that worked out?
US sanction policy has not only failed, it has backfired. The biggest beneficiary has been China.
Unprecedented US and EU sanctions against Russia have had no impact on Russia’s oil exports or revenue. Who’s the beneficiary?
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