OPINION:
It has been two years since the U.S. and other Western countries imposed economic sanctions on Russia — the first effort to use sanctions to stop an invasion by another major power since the U.S. effort to compel Japan with an asset freeze and oil export ban in 1941. So, it’s a good time to assess Russia’s evolving global energy role and its implications for the United States and the world. The results are mixed.
Russia has had varied success in adapting to sanctions. It has largely succeeded in redirecting its oil exports, albeit at reduced efficiency and higher cost. Exports that would have gone elsewhere in Europe have gone to India, which imported about 40% of Russia’s oil in 2023 after buying virtually none before the February 2022 invasion of Ukraine. China, which imported 45% to 50% of Russia’s oil in 2023 after buying around 30% in 2021, has also benefited. China and India got a good deal, too, as our policies made this oil cheaper.
Russia’s coal industry has also generally adjusted. China and India have increased imports of Russian coal, and in the first nine months of 2023, the United Arab Emirates imported about 60% of Russia’s former coal exports to Europe. Nevertheless, Russia’s coal production is becoming unprofitable because of higher rail tariffs and export duties.
Russia’s natural gas sector is also struggling. Vladimir Putin’s ill-timed decision to slash natural gas exports to the Continent ultimately contributed to an 83% reduction in gas shipments to Europe. Europe was Russia’s largest and most profitable market, and Russia lacks both the pipelines and the ice-capable liquefied natural gas carriers to compensate with exports to China or elsewhere.
Notwithstanding a new U.S. uranium import ban slated to take effect in 2028, Rosatom, the Russian state nuclear energy company, has avoided damaging sanctions partly because of Western dependence on its enriched uranium — Russia has well over 40% of the world’s enrichment capacity. In other cases, Rosatom is building reactors in allied countries (Hungary and Turkey) or with major subcontractors from allied countries (such as Rosatom’s project in Egypt). Rosatom holds 70% of global reactor construction orders.
Looking ahead, restrictions on investment and technology will likely pose compounding challenges. In oil and natural gas, declining production in their current fields could force Russian companies to pursue expensive and technically demanding projects in the Russian Arctic. These will be difficult to finance while Russia’s war in Ukraine continues.
Worse for Moscow, even if Russia can build more pipelines or obtain needed LNG carriers, the price of existing pipeline gas exports to China is reportedly over 40% lower than Gazprom’s prices for its few remaining European customers.
Over time, U.S. and Western governments might be more willing to impose sanctions on Rosatom’s core businesses. Competition from China could also undercut Rosatom’s export opportunities in the global south.
For the United States, these changes have four important implications:
Russia’s economy is doing sufficiently well, and its political system is not on a trajectory to near-term or midterm collapse. Instead, Russia could enter a period of enduring stagnation. Sustained low oil prices could put heavier pressure on Kremlin leaders, as occurred in the 1980s.
Russia is reorienting its energy trade and foreign relations. With China, Beijing seems to be gaining more than Moscow. With India, New Delhi thus far appears willing to accommodate important U.S. preferences. Whether this will endure remains to be seen.
Our allies in Europe and Asia rely on imported LNG. Collectively, we are trying to slow or stall Russian Arctic LNG projects. The Biden administration should accelerate U.S. LNG production and exports rather than pausing licensing so that new U.S. projects can aid allies and beat Russia to the market.
U.S. and Western sanctions are increasing inefficiency, inconvenience and costs for Russia’s energy sector, but Russia has so far found solutions. Some might not be good, but most are good enough. Russia’s fundamental challenge is that before the war, it was technologically behind not only America and its allies but also China. Russia has traded its technological dependence on the West for dependence on China.
After worrying for decades about the political consequences of Europe’s energy dependence on Russia, it’s time for U.S. policymakers to start thinking about the political implications of Russia’s strengthening and emerging energy relationships with the rest of the world.
In most cases, Washington will have less influence in these capitals than it has had with allied governments. Successfully contending with Russia’s continuing energy influence will demand global focus, intense effort, skilled diplomacy, and a realistic competitive strategy, especially in the global south, where access to affordable energy is far more important than U.S. and European appeals.
• Paul Saunders is a former State Department official and current head of the Center for the National Interest, a foreign policy think tank.
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