Europe continues to tighten the noose around the throat of Russia's economy

After a month of discussions, the EU's sixth sanctions package has finally been adopted. It would be more correct to write "after a month of fumbling", but let's stick to the principle - better late than never.

The assessment of this sixth sanctions package ranges from cautiously optimistic - the Russian war machine is finally being deprived of a good deal of financial fuel - to outrageously pessimistic: according to Bloomberg (which is often caught publishing information that is favorable to Russia), the total revenue foregone by Russia could amount to USD 22 billion a year. I repeat, per year - at current Russian energy export revenues of around USD 800 million per day. In other words, this package of sanctions will be nothing more than a mosquito bite for the Russian bear.

But let us not rush to categorical judgments. Before we look at the sanctions in question, let us first of all clarify for ourselves what the main objective of these sanctions is. If we take this to be the early cessation of hostilities, then it is unlikely that this objective can be achieved in this way. That may be a side factor, but these sanctions have no direct impact on Russia's military activities. What, then, is their purpose?

Paradoxical as it may sound, the main objective of these sanctions is precisely what the Kremlin's TV propaganda trumpets on a daily basis. Namely, the West wants to weaken Russia. However, the propagandists' truth ends with this one sentence. If the collective Solovyov justifies this weakening based on the West's almost innate (since Alexander Nevsky) "Russophobia" and hatred of everything Russian, the world justifies this desire to weaken Russia quite pragmatically. Sanctions are a punishment for Russia's aggressive behavior - in particular, the invasion of Ukraine - and the world's self-evident desire never to allow such acts of aggression again.

It is precisely the long-standing unjustified love for Russians, which in some countries, such as France and other southern European countries, still persists to some extent even today, that allowed Putin's war machine to gather momentum over many years and created a false sense of impunity in the Kremlin. Now a large part of the European political class has sort of come to its senses and realized that "something has to be done". It is true that only a part of it, and even then it has not fully understood what exactly needs to be done. This confusion is also reflected in the chaotic and non-uniform nature and content of the sanctions.

Let us leave aside the obvious fact that not all EU countries see the war in Ukraine in the same way. That is the subject of a separate article, so let us not look at the motivations of Hungary, Cyprus, Italy, Bulgaria or France for taking this or that position. What does the sixth package of EU sanctions include, and what could be the consequences of these sanctions?

The main impact of this sixth package is on Russian oil exports. Within six months, EU Member States must stop importing Russian crude oil by sea, and within eight months they must stop importing oil products. This transition period is given to complete existing agreements. A separate extension has been granted to Bulgaria, whose largest refinery is allowed to buy Russian oil until 2024.

The Druzhba oil pipeline is not covered by these sanctions. Its main branch runs through Belarus to Poland and Germany, while the southern branch runs through north-west Ukraine to Slovakia, the Czech Republic and Hungary. The northern branch of the pipeline also runs to Ventspils and Būtingė, but oil has not been flowing through it for a long time, since Russia instead built its own internal pipeline to the port of Ust-Luga in the Gulf of Finland near St Petersburg.

Poland and Germany have committed to completely stop buying oil from Russia through this pipeline by the end of the year. The three mentioned landlocked Central European countries also plan to gradually reduce their purchases of Russian oil through pipelines.

In actual numbers, these sanctions must be regarded as quite serious. Russia's total oil exports are 230 million tons per year plus 144 million tons of oil products (mostly semi-finished products that need further processing). Of this crude oil, around 100-110 million tons are exported to Europe, 80 million tons to China and around 40 million tons to the rest of the world.

Less than 15 million tons of oil are exported annually through the southern branch of the Druzhba pipeline (less than 15% of all Russian oil exports to Europe). Hungary, for example, received 3.6 million tons through it last year, which is a tiny amount in the overall picture. This means that Russia's exports to Europe will already fall by 90 million tons (annualized) by the end of the year. It is estimated that Russia could find additional buyers in other markets for a maximum of 20 million tons (annualized). This would already lead to a decline in Russian crude oil exports of at least 70 million tons next year. At least, because talk has already started of a further package of sanctions that could target the insurance of tankers carrying Russian oil, which will make it even more difficult to export Russian oil.

To complete the picture, it should be noted that the oil export ban also applies to oil products, which Russia's refineries will simply have nowhere to put. Given that Russia has no reservoirs in which to store unrealized oil and oil products “until better times”, a reduction in oil exports means a reduction in oil production. It is estimated that the decline in oil production could exceed 25% by the end of the year.

An additional long-term problem is that oil production cannot be reduced simply by turning off the tap or shutting down the pumping system. Plugging an oil well is a complex engineering operation, but it is even more difficult to unplug the well again. With all four of the world's leading oil well service companies - Halliburton, Schlumberger, Baker Hughes and Weatherford International - having already left Russia, the Russian oil industry faces a long-term decline.

How rapid or gradual this decline will be is difficult to say at the moment, but if we bear in mind the strategic objective of these sanctions, it will certainly be achieved: Russia will be weakened economically and, if it ever thinks “we can do it again”, it will know that it can expect more than just expressions of “deep concern”. Then it will know that it can expect the “chokeholds” that Putin as a judo practitioner knows well. Whether this will deter Russia from doing more “mischief” is another question.