In 2022, Russia’s war efforts were significantly bankrolled by its colossal oil and gas revenues. Data from the Federal Customs Service of the Russian Federation reveals a record-breaking $384 billion in energy revenues for Russia in 2022, marking the highest point in the nation’s history. This surge was fueled by rising energy prices, with Russian Urals oil averaging $76 per barrel (up from $69 in 2021) and gas prices soaring to $1,500 per 1,000 cubic meters. These price hikes enabled Gazprom to bolster its income despite a considerable drop in exports to Europe. These unprecedented export earnings cushioned the Russian economy against the impact of numerous sanctions, including record capital outflows.
A significant portion of these revenues originated from the European Union, which was, prior to the oil embargo, the largest consumer of Russian energy resources. In 2022, the EU’s energy bill to Russia totaled almost 140 billion euros. This sum breaks down to approximately 83 billion euros for oil, 53 billion for gas, and an additional 3 billion for coal. To put this into perspective, in 2021, Russia’s earnings from European exports were 123 billion euros, 68 billion in pandemic-stricken 2020, and 112 billion in 2019. Converting 140 billion euros to dollars, using an approximate average exchange rate for 2022, this equates to roughly $147 billion dollars. This substantial figure underscores the magnitude of Europe’s financial contribution to Russia’s energy sector in the year preceding more stringent sanctions.
Looking ahead to 2023, projections from the Belgian think tank Bruegel suggest that Russia could still garner between 14 and 69 billion euros from the European market, despite the oil embargo and limitations on gas supplies. Their baseline scenario anticipates revenues of at least 29 billion euros.
Projected Russian Energy Income from European Sales (Billions of Euros)
Bruegel’s baseline scenario assumes continued Russian gas exports via Ukraine and the Turkish Stream pipeline at current volumes (630,000 megawatt-hours per day). Liquefied natural gas supplies are expected to remain at 2022 average levels (510,000 megawatt-hours per day), with a price of 50 euros per megawatt-hour. Crude oil imports via pipelines are projected at 285,000 barrels per day and sea transportation at 100,000 barrels per day, with an average price of 55 euros per barrel.
Reaching the higher end of the revenue projection (69 billion euros) hinges on several factors. Gas transit through Ukraine would need to match or exceed 2022 averages, potentially driven by increased European demand due to adverse weather. LNG supplies would need to remain at peak 2022 levels (630 megawatt-hours per day). Furthermore, oil supplies would need to surpass the baseline, which could occur if Bulgaria and Poland increase their demand. While Bruegel considers this less probable, Bulgaria has already permitted the export of petroleum products derived from Russian oil to Ukraine. This maximum revenue scenario also relies on gas prices doubling to 100 euros per megawatt-hour and Russian oil reaching $70 per barrel, a price point factored into Russia’s budget.
Bruegel’s analysis indicates that EU energy sanctions will remain partially effective as long as they exclude restrictions on Russian gas sales. If the extreme scenario of increased gas flow and higher prices materializes, Russia’s gas export revenues could mirror 2022 levels. While declining oil supplies to Europe might be redirected to Asia, resulting in minor budget losses for Russia, gas export redirection is not feasible if sanctions target gas. However, Europe’s energy balance is already fragile, and further supply reductions could negatively impact the region, mirroring the effects on Russia.
Therefore, the effectiveness of further sanctions against Russian energy exports is limited. The Russian economy and budget are now heavily reliant on oil prices. After peaking in early 2022, oil prices stabilized in autumn before declining in early 2023, causing a significant drop in Russian budget revenues as Urals oil fell below $50 per barrel. However, OPEC+’s recent unexpected decision to cut production by 1.6 million barrels per day has triggered price increases. This development provides a considerable advantage to Vladimir Putin, both for the war in Ukraine and in circumventing sanctions. This OPEC+ decision is anticipated to counteract the impact of any additional EU sanctions on Russian energy exports.
