Russian federal budget’s oil and gas revenues are up

The sanctions against Russia extended by the West on February 23 are still being actively discussed. The Russian authorities keep persuading all the others of their lack of concern in this regard. In his Federal Assembly address, Russian President Vladimir Putin noted that the country's economy grew faster than elsewhere in the world as of 2023. And his press secretary Dmitry Peskov said that there was “nothing fundamentally new” in new sanctions adopted right before the war in Ukraine entered its third year, and mentioned the so-called “boomerang effect.”

The West’s gravest anti-Russian sanctions have already been introduced, with intensified pressure on the national economy not able to force it out of the growth path. A conclusion to that effect came from experts with the Russian Presidential Academy of National Economy and Public Administration’s Institute of Applied Economic Research in their article “High risks and weak pace of economic growth: Russia macroeconomic forecast for the medium term,” published in the Voprosy Ekonomiki journal.

Also, one should not forget about international reaction to Western sanctions. The Chinese authorities, for one, have criticized those imposed on February 23, as that country’s Ministry of Commerce saw them as “threatening the security of global supply chains.”

Moreover, restrictions are being lambasted by some US allies as well. They deem secondary sanctions targeting companies that collaborate with Russia as Washington’s abuse of power.

Even the latter itself has publicly acknowledged Russia’s resistance to sanctions. Its economy remains stable despite anything, White House National Security Assistant Jake Sullivan told Fox News. And the United States and Europe, he added, need to proceed with sanctions pressure, limiting Russia’s capabilities.

In turn, Bloomberg calculated that Russia's February oil and gas revenues grew by over 80% against the same period last year to exceed $10bn thanks to the rising oil prices. And this is clear proof of ability to withstand sanctions, the agency stressed.

Meanwhile, the Russian Finance Ministry reported that revenues from the sale of oil and gas in February 2024 jumped by 40% month-over-month to amount to 945.6 billion rubles. In January, oil and gas brought the federal budget another 675.2 billion — a noticeable leap, despite that world oil prices have not grown that much. Here one has to take due regard of fiscal innovation: November 2023 saw an amendment to the Tax Code about an increased rate for oil production starting January 2024.

So far, the pricing environment has been favoring national exporters and the treasury. But Western sanctions against Russian energy may start displaying a stronger impact on export volumes over their constant expansion — a really severe challenge to the authorities and the industry. And alert signals sound more and more often.

In March, the media reported a new issue with Russian oil exports — this time along the Turkish direction. Global Terminal Services (GTS), which operates Turkey's Dortyol oil terminal, said it would no longer accept Russian oil amid Western sanctions.

The company noted in a statement that all the previous operations were compliant with the sanctions regime, including the G7-invented price cap. GTS called suspended operations with Russian petrochemicals a corollary measure to newly introduced restrictions. Still, Russian cargoes declared before the late-February ban will be accepted here, the company clarified.

Another relevant case from Reuters: «Dozens of oil tankers used by Russia have stopped sailing under the Liberian and Marshall Islands flags in recent weeks after the United States ramped up sanctions enforcement on ships linked to those registries, according to shipping data and interviews with industry and government officials».

The Indian track is still not all roses either, as the country's major state-owned refinery Indian Oil will most likely reduce volumes coming from the Russian Federation as part of the so-called urgent supplies. Meanwhile, Bharat Petroleum and Hindustan Petroleum have decided not to commit to purchasing contracted oil in the next fiscal year, Bloomberg reported citing informed sources.

Another unpleasant news has come from Europe: Bulgaria will stop importing Russian oil starting March 1, thus prematurely abandoning its exemption from the ban that is valid until the end of 2024. LUKOIL, the Burgas refinery owner, is considering various adaptation scenarios, including asset sale involving international consultants. LUKOIL has long been known seeking buyers for its Burgas refining capacities.

Western sanctions are obviously becoming an increasingly serious problem to Russian exporters. Moscow’s response to the February “sanctions pool” might embrace additional discounts and better camouflage for tankers, their routes and destinations.