Russia’s Oil Keeps Flowing, but Cash for the War Dries Up
Although Russia continues to actively export oil, its real revenues from energy are rapidly declining, reducing funding for the war.
The Gaze reports on it, referring to Business Insider.
According to a new analysis by Goldman Sachs, stable Russian oil supplies mask a deeper financial crisis, exacerbated by US sanctions and falling global prices.
Despite tough US sanctions against Russia's largest oil companies, the Kremlin's economic system was able to quickly restructure its logistics flows. After the restrictions, these companies' maritime transport fell by 42%, while total exports fell by only 100,000 barrels per day.
Moscow was thus able to instantly shift supplies to smaller producers not covered by sanctions, keeping export volumes almost unchanged.
Meanwhile, Russia's energy revenues have fallen sharply, as oil export revenues in rubles have declined by 50% from 7.6% of GDP to 3.7%. And given that the energy sector has historically provided more than a third of the federal budget. The current drop in revenues directly affects the Kremlin's ability to finance the war.
All this is happening against the backdrop of a sharp increase in military spending and active expansion of arms production. Russia thus finds itself in a situation where its military machine needs more and more funds, but its resource base is rapidly shrinking.
An additional factor of pressure is Ukraine's campaign of drone strikes on Russian energy infrastructure, which Goldman Sachs identifies as a new serious geopolitical risk. Despite this, markets do not yet consider Russian supplies to be critically threatened, with Brent prices remaining virtually unchanged, keeping Moscow's revenues at an even lower level.
However, even a single Ukrainian attack can lead to huge losses in Russian oil industry. Earlier, on Novermber 15, oil exports from Russia’s hub of Novorossiysk were temporarily halted after a large-scale Ukrainian missile and drone strike. The suspension affected roughly 2.2 million barrels per day, affecting about 2% of global oil supply, triggering an immediate rise in international oil prices.
And in November, Ukraine carried out a record series of attacks on Russia's strategic oil infrastructure. Ukrainian military used drones reportedly at least 14 times last month to strike Russian oil refineries, tankers, and oil terminals. These attacks significantly hampered the operation of Russian oil refineries, reducing their processing to approximately 5 million barrels per day, whereas typically the number is higher (about 5.3–5.5 million barrels per day).
As The Gaze reported earlier, Ukrainian President Volodymyr Zelenskyy announced a significant reduction in Russia's oil and gas revenues that would amount to at least $37 billion in 2025.
Read more on The Gaze: Why Ukraine Should be allowed to district of Russian Oil Refineries – Benefits for the US and EU