Since the Ukraine war began, the United States and its allies (primarily Western states) have steadily increased sanctions on Russia, aiming to economically isolate Moscow. The strategy is to stifle income from gas and oil exports, reducing President Putin’s funds to finance the war. In theory, this should force Russia to stop fighting once they run out of money. However, in practice, it’s much more complicated, and assessing the effectiveness of these sanctions on the Russian economy poses a challenge.

One important distinction in evaluating the sanctions is that oil and gas are two separate categories, not products. The impact on oil differs from the impact on gas, and within gas, sanctions affect piped natural gas differently from LNG. The overall economic impact is distinct from the effect on oil and gas exports, as sales and revenues are influenced by market factors and decisions made by the Kremlin, Washington, and Western parliaments. For instance, Europe had planned to decrease oil and gas imports by 2030 to meet climate goals even before the war, which would have led to a decline in Russia’s oil and gas revenues by billions of dollars annually, regardless of the sanctions.

The decrease in state-owned energy giant Gazprom’s piped natural gas sales to Europe resulted from an internal decision within Russia, not European sanctions. Consequently, the decoupling of Russian gas from Europe was unavoidable, causing the gas sector to experience a greater revenue loss than the oil sector. Overall, both sectors saw a combined 24% revenue decrease from 2022 to 2023. This reduction has severely impacted the Russian state budget, prompting a shift in the income tax system from a flat rate of 13% to a progressive rate peaking at 22%.

Non-piped LNG exports continue more or less unabated. However, Moscow does not tax them directly, though it collects some rent on these assets. This generates positive cash flow but not enough to compensate for losses on piped-gas exports. Consequently, in the first half of 2023, Gazprom’s production dropped by 25% year-over-year, revenue fell by 41%, and profit from sales declined by 71%. As a result, the company reported a net loss of nearly $7 billion, its first loss in 20 years.

With Europe significantly reducing its imports of Russian oil and gas, Russia has pivoted toward Asian markets. However, Asia and the Global South, apart from China, cannot substantially invest in Russian energy infrastructure as the West could, and these markets do not compensate for the loss of European sales. Additionally, the shift toward Asia involves selling oil at discounted rates to countries like China, India, and Turkey. Selling at a discount is not sufficient to make up for the loss of sales to Europe at prime prices. Furthermore, Russia’s energy transfer infrastructure is primarily aimed at Europe, and the lack of infrastructure on the Asian side increases costs, making these exports highly susceptible to small market price fluctuations. Overall revenue from these exports has not fully compensated for the loss of the European market due to heavy discounts and increased shipping costs.