Possible future scenarios of anti-Russia sanctions policy

The unprecedented sanctions against Russia have shown how the civilized world is united around global security challenges.

Many analysts, including Russian economists, who oppose Russian aggression in Ukraine, including Science Po professor Sergei Guriev and the University of California Berkeley professor Oleg Itshoki, in a group with German colleagues, claimed back in early summer that just embargo on Russian oil and gas will not be enough, either a tax or an oil price ceiling is needed. 

As a result, the West implemented a ceiling on oil prices. The reason for the introduction of the oil price ceiling is quite logical. It is justified by the fact that Russia would not be able to reorient itself to other markets in response to the embargo.

Russia is one of the world’s top three suppliers of energy resources, and the Russian economy is mainly dependent on natural gas and oil revenues. The bulk of Russia’s federal budget, namely 45%, is revenue from the oil and gas sector, according to MEA. 

In 2022, fuel prices only grew. Based on this, we can say that the Russian budget is only in the black with unchanged export volumes. Until the total embargo, the Russian budget will generate income, which for the most part, will be spent on weapons and ammunition to continue the war. 

According to Kevin Berry, a professor at the University of Alaska Anchorage, a total embargo on Russian energy resources by the EU will reduce Russia’s GDP per capita by $1,500-$2,500 (10-25%).

Considering market conditions, trade relations between countries, and the inflexibility of energy infrastructure, an embargo is an unpopular measure in many governments. Despite this, for some countries, the cessation of the use of Russian energy resources is inevitable. 

This can be said about the countries of the European Union, where one can observe the use of energy resources as a weapon to achieve their political interests. Although Europe has learned to live without Russian energy resources, Russia is a potentially attractive country that exports energy resources at a discount for the rest of the world.

A worldwide embargo on Russian energy resources is a realistic scenario if considered in the long term.

The global energy embargo has many advantages

1. Improvement of the ecological situation in connection with reducing environmental emissions.
2. Increasing energy prices will stimulate investment in green technologies
3. High prices also stimulate more green innovations
4. Finally, a global embargo will provide protection and guarantees for the existence of a functioning world order that has been shaken in the past year.

As with the oil embargo, the long-term benefits of this decision will outweigh the short-term costs. Sanctions are a necessary tool for stabilizing and regulating the existing rules of the game and one of the most defining motivators for complying with international regulations.