“Ruin Russia” (II)
Germany increases Russian oil imports – via India. EU remains major buyer of Russian LNG – at a higher price – than for pipeline gas. Russia’s economy grows, Western sanctions have failed.
MOSCOW/BERLIN (Own report) – Germany and the EU’s attempts to ban Russian oil imports has failed. Most recent statistics show that in the first seven months of 2023, the volume of Germany’s petroleum products imports from India have soared to more than 12 times that of the same period last year. India, on the other hand, has been able to increase its exports only due to a massive expansion of Russian oil imports, of which large portions are presumably arriving in Germany – however at a much higher price and to the benefit of Indian billionaires. Due to the fact that the importation of low-cost Russian pipeline gas has been massively reduced – partly due to the destruction of the Nord Stream pipelines – the EU is purchasing more than half of Russia’s more expensive LNG. At the same time, Russia’s economy is recovering and experiencing new growth. German Foreign Minister Annalena Baerbock, who announced in February 2022 that the sanctions would “ruin Russia,” has recently deplored their failure by saying that unspecified “logics of democracies are ineffective in autocracies.”
Russia’s Economy Grows
The latest prognoses of the International Monetary Fund (IMF) have already confirmed that Russia’s economy is again on the upswing, following the sanctions shock in the spring of 2022. In July, the IMF raised its estimate for Russia’s economic growth in 2023 from 0.7 to 1.5 percent. This places the country exactly on a par with the growth expectations of Western industrialized countries, which the IMF also estimates at 1.5 percent. With its economic output shrinking by around 0.3 percent, Germany, in particular, is faring badly. Of course, Russia’s economy is not growing in all sectors. The arms industry, running at full speed, is currently playing a prominent role. This is the main reason why Russian industrial production has grown at an above-average 2.6 percent rate during the first half of 2023.[1] Retail trade has also increased substantially – particularly in regions where defense industries are located or where soldiers are stationed. The construction industry is growing significantly faster than other sectors, partially because reconstruction is being vigorously pursued in the incorporated Ukrainian territories, many of which have suffered severe war damage.[2]
Shifting from Europe to Asia
Russia’s foreign trade is also growing again. Last week, the Institute for the World Economy in Kiel (IfW) announced an increase in the volume of goods unloaded at Russia’s three largest container ports – Saint Petersburg on the Baltic Sea, Vladivostok on the Pacific and Novorossiysk on the Black Sea. In St. Petersburg in particular, imports of containers had slumped by up to 90 percent last year. In recent weeks, according to the IfW, the volume of imported goods in the three ports “increased sharply” and in August “approached pre-war levels again.”[3] The origins of imported goods “cannot be determined beyond a doubt,” IfW expert Vincent Stamer states. However, Russia seems to be “increasingly participating in world trade again.” At the same time, its trade is rapidly shifting from Europe to Asia. During the first four months of 2023, the once-strong Russian-German trade plummeted by 75 percent, to a mere €5.5 billion in comparison to the same period last year.[4] In the same period, Russian-Chinese trade soared by 41 percent to US $73 billion. Russian-Indian trade even increased fourfold, reaching US $21.8 billion.
Failed Sanctions
The growth statistics confirm that the Russian economy has resurged in at least in the significant sectors from the severe initial shock that it had suffered from the economic war declared by Western countries in the immediate aftermath of Russia’s intervention in the war in Ukraine. Already on February 25, 2022 – immediately following the imposition of sanctions – Foreign Minister Annalena Baerbock self-confidently declared that the sanctions would certainly “ruin Russia.”[5] Last month, when asked about this in an interview, she responded: “actually economic sanctions would have an economic impact. But that is [in Russia’s case, editor’s note] not the case.” As to the reason, the foreign minister explained: “because the logics of democracies are ineffective in autocracies.”[6] The minister did not elaborate on which “logics” she was referring to or why their ineffectiveness had not been foreseeable, even though, since quite some time, Russia had been referred to as an “autocracy” in the West – even by Baerbock, herself. Instead, she expounded, without really clarifying, saying “We have experienced that rational decisions, rational measures, taken by civilized governments, cannot end this war.”
Costly Sacrifice
In addition to the foreign minister’s “logics,” Berlin’s efforts to become independent of Russian energy resources is raising new questions. Not all of the Western countries that have imposed sanctions on Russia are refusing its raw materials. For example, roughly a third of the uranium used in the United States for its power plants is now imported from Russia, for which American companies are paying around US $1 billion a year.[7] Japanese corporations Mitsui and Mitsubishi have regularly confirmed that they have no plans of relinquishing their corporations’ 22.5 percent stake in Russia’s Sakhalin-2 LNG project. This is necessary because the Sakhalin 2 LNG project supplies almost 9% of Japan’s LNG imports.[8] Germany and the EU’s attempts to forego using coal and natural gas from Russia, as much as possible, have skyrocketed the energy costs and not reached their goal. For example, since Brussels banned the importation of Russian oil by ship, EU member countries have purchased around 8 percent of Russia’s total oil exports, and particularly 53 percent of all Russian LNG exports.[9] In addition, today, Germany imports twelve-times more petroleum products from India than it had last year. These are probably produced from Russian oil. Their value rose from €37 million between January and July 2022 to around €451 million for the same period in 2023.[10] Russian and Indian companies are sharing the profits.
Oil Price Cap Failed
Concurrently, the attempt to diminish Russia’s oil export revenues by imposing a price cap has failed. At the end of last year, the G7 and EU had ruled that, in the future, western enterprises may transport Russian oil, and insure these transports only if the raw material being transported did not exceed US $60/barrel.[11] While initially assuming that the plan would be successful, recent reports show that the oil price cap is not working. Whereas, in June, the world market barrel-price of Russian Urals oil was still between US $54 – $56, it has now climbed to US $74/barrel.[12] Accordingly, months ago, significantly more than US $60/barrel for Urals was being paid in East Asia. Thus, Russian returns on its oil exports has significantly increased. The western powers have also missed their target, also in this respect.
[1] Klaus Dormann: Russland: Höhere BIP-Prognose des IWF, aber die Industrie stagnierte im Juni. ostexperte.de 31.07.2023.
[2] Pascal Siggelkow: Wie erfolgreich sind die Russland-Sanktionen? tagesschau.de 04.08.2023.
[3] Welthandel belebt sich, Russlands Hafenaktivität fast auf Vorkriegsniveau. ifw-kiel.de 07.09.2023.
[4] Hans-Jürgen Wittmann: Umbau zur Kriegswirtschaft dämpft den Abschwung. gtai.de 15.06.2023.
[5] Baerbock über Sanktionspaket: „Das wird Russland ruinieren”. rnd.de 25.02.2022. See also „Russland ruinieren”.
[6] Sanktionen ohne Erfolg – Baerbock enttäuscht. zdf.de 24.08.2023.
[7] Max Bearak: The U.S. Is Paying Billions to Russia’s Nuclear Agency. Here’s Why. nytimes.com 14.06.2023.
[8] Davide Ghilotti: Japanese trader Mitsui has no plans for Russian LNG exit. upstreamonline.com 21.06.2023.
[9] Isaac Levi: July 2023 – Monthly snapshot on Russian fossil fuel exports and sanctions. energyandcleanair.org 22.08.2023.
[10] Claus Hecking, Michael Brächer: Deutschland importiert offenbar russisches Öl über Indien. spiegel.de 12.09.2023.
[11] See also „Ein Schuss in das eigene Knie”.
[12] Benjamin Bidder, Claus Hecking: Warum der Preisdeckel für Putins Öl floppt. spiegel.de 11.09.2023.
