Boycott Russian energy now
KYIV — Blocking the Russian central bank’s foreign exchange reserves was a brilliant move. Disconnecting some Russian banks from the SWIFT financial messaging system was helpful. And pursuing the offshore wealth of Russian President Vladimir Putin’s cronies is appropriate. But none of these sanctions have stopped the Russian invasion of Ukraine for one reason, and none of them will.
The reason is simple: Russia continues to export oil and gas. Indeed, the war has boosted the price for these products, benefiting the most important sector of the Russian economy. So, a week after it began, Western energy consumption is still financing Russia’s invasion of Ukraine, and the Russian elite is doing better than ever. There is no way around it: The only way to stop Putin’s aggression is to impose a comprehensive boycott on all Russian energy products.
Energy comprises the bulk of Russia’s exports, primarily in two forms: gas to Western Europe, via pipelines and paid for on long-term contracts, and oil to world markets, sold mostly on spot markets.
According to figures from the International Energy Agency (IEA), “Revenues from oil and gas-related taxes and export tariffs accounted for 45 percent of Russia’s federal budget in January 2022. Considering current market prices, the export value of Russian piped gas to the EU alone amounts to $400 million per day. Total export revenues for crude oil and refined products currently amount to around $700 million per day.”
A comprehensive boycott of Russian energy can start with the United States imposing full sanctions, including secondary sanctions, on all Russian oil and gas exports. The world oil price will rise, but if the sanctions are fully enforced, none of that windfall will go to Russian producers. In this scenario, the IEA estimates that oil production around the world will be boosted very quickly—Russia exports five million barrels per day (bpd); additional world supply can add at least three million bpd. Energy conservation measures can and should also be introduced where appropriate.
Of course, the European Union would need to follow suit. But, to put it bluntly, this is only a matter of time. The EU can either stop buying Russian gas now to halt the invasion, or it can wait a month, until thousands more people have died—and the horrific photos of civilian casualties flood every channel. At some point soon, Europe will no longer be able to stomach the fact that it is paying for Putin’s atrocities in Ukraine.
To be sure, Europeans will have to make difficult decisions, not least how to finance the immediate transition away from Russian gas. But imagine the decisions that must now be made in Ukraine, to keep people alive and to prevent the greatest humanitarian disaster Europe has seen since World War II.
Nor will the impact be limited to Europe. Very soon Ukrainian agriculture will collapse: No one can farm while being attacked by Russian forces. This will push up global food prices because Ukraine is the world’s fifth-largest exporter of wheat, implying a major impact on low-income countries.
Some Europeans will pay more for their heating bills because of what Putin is doing. But compare this with how Ukrainians are struggling to find food, safe drinking water, and essential medicine—while avoiding being shot or blown up.
The world is arming and encouraging a violent, uncontrollable monster when it buys Russian energy. It must stop. Project Syndicate
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Oleg Ustenko has been economic adviser to Ukrainian President Volodymyr Zelenskiy since May 2019. Simon Johnson contributed to the writing of this commentary.
