Is the West funding Russia’s war in Ukraine through fossil fuels?

Since Russia's invasion of Ukraine in February 2022, European countries and the US have been instrumental in providing military, financial, and humanitarian support to Ukraine.

Yet, as the war continues to devastate the region, a glaring paradox emerges: Western countries, despite their public support for Ukraine, are indirectly funding Russia's war machine by continuing to purchase Russian fossil fuels.

This situation underscores the complex and often contradictory nature of international trade, where geopolitical rivalries and economic realities clash in troubling ways.

Before Russia’s invasion of Ukraine, European countries were deeply reliant on Russian energy. In 2021, Europe imported around 40 per cent of its natural gas and 25 per cent of its oil from Russia. While some European nations had begun moving towards energy diversification, the Russian invasion intensified efforts to break free from Russian fossil fuels.

However, the transition has not been as swift as many hoped, and despite sanctions and promises to reduce reliance on Russian energy, European countries are still purchasing significant quantities of Russian oil, gas, and coal.

According to aBBC report, Russia’s fossil fuel exports generated an astonishing $242 billion in revenue in 2023, a year marked by heightened sanctions. These revenues have helped Russia fund its military efforts, and a substantial portion of this income has been generated from sales to countries outside the West.

While the European Union (EU) and the US have significantly reduced their purchases of Russian energy, countries like China, India, and Turkey have stepped in to absorb the surplus. This dynamic has allowed Russia to cushion the blow of Western sanctions, ultimately prolonging the war.

In recent months, Europe has made substantial progress in reducing its dependence on Russian gas, but the same cannot be said for oil. The EU introduced a price cap on Russian crude oil and refined products in December 2022, but countries like Hungary have continued to rely on Russian oil, undermining the sanctions.

While the EU as a whole has made strides in curbing Russian energy imports,Energy and Clean Air notes that oil shipments from Russia to Europe still persist through indirect channels, with some countries using intermediary nations to procure Russian oil. This loophole has allowed Russia to continue reaping profits despite the sanctions.

How Russia evades sanctions

One of the West’s key tools for limiting Russia’s oil revenue is the price cap, implemented by the G7 and the EU in December 2022. This price cap was designed to prevent Russia from benefiting from higher oil prices while still allowing oil exports to continue. The idea was to reduce Russia’s ability to fund its war while maintaining stability in global energy markets. However, asRussia Fossil Tracker points out, the price cap has had limited success.

The mechanism, which caps the price of Russian oil at $60 per barrel, has been difficult to enforce effectively. Russia has circumvented the price cap by rerouting its oil exports to non-Western countries, such as China and India, where it can sell oil at a discount without facing Western restrictions.

In fact, as theAtlantic Council highlights, these countries have been buying Russian oil in increasing quantities, often at prices far below the cap. Russia has been able to sell its oil at discounts ranging from $20 to $30 per barrel, making it attractive for non-Western countries to purchase, further diminishing the intended effect of Western sanctions.

This dynamic highlights a significant flaw in the West’s strategy. While the EU and the US can reduce their purchases of Russian energy, they cannot fully control the global flow of oil and gas. With countries like China and India buying discounted Russian oil, Moscow continues to receive substantial revenue, which in turn funds its war effort.

As long as Russia’s energy exports are in high demand, the country will be able to navigate around Western sanctions and continue its military operations in Ukraine.

Moreover, Russia’s energy companies, such as Gazprom and Rosneft, have also found ways to maintain their production levels, despite sanctions. These firms have managed to retain access to global markets, including the sale of natural gas and oil to non-Western countries. This revenue has been a crucial source of funding for Russia’s war effort, allowing it to purchase arms, maintain military operations, and sustain its political and economic stability.

The paradox at the heart of the West’s strategy is clear, while the West continues to provide substantial financial and military support to Ukraine, they are simultaneously financing Russia’s war effort through fossil fuel imports.

This dilemma is particularly pronounced in Europe, where energy prices have skyrocketed as a result of the sanctions and the ongoing conflict. European governments have faced immense pressure to reduce energy costs for their citizens while balancing their support for Ukraine.

As theWorld Bank has noted, the Western sanctions against Russia have had some impact on Russian revenues, but not enough to significantly weaken the Kremlin’s ability to continue its military operations.

Despite the sanctions, Russia’s oil and gas sector remains a primary source of income, and Moscow has been able to shift its exports to countries that are less concerned with the sanctions regime.

The result is a situation where the West’s efforts to financially support Ukraine are somewhat nullified by the funds Russia continues to earn from its energy exports. While the EU and the US have provided billions of dollars in aid to Ukraine, the revenue generated by Russia from fossil fuel exports allows the Kremlin to continue its aggression. In effect, the West is funding both sides of the conflict, creating a complex and uncomfortable reality.

Towards energy independence: A long road ahead

As Europe seeks to reduce its reliance on Russian energy, the road ahead is long and fraught with challenges. The EU has set ambitious targets to reduce its reliance on Russian fossil fuels, including plans to phase out Russian oil and gas imports by 2027. However, these plans face significant obstacles, particularly in countries like Hungary, which have resisted efforts to impose further sanctions on Russian energy exports.

One of the key challenges in reducing Russia’s energy revenues is the ongoing demand for fossil fuels globally. AsStatista reports, despite efforts to transition to renewable energy, the global demand for oil and gas remains high, particularly in emerging markets.

This creates a situation where countries outside the West are willing to purchase Russian energy at discounted rates, ensuring that Russia continues to generate significant revenues. Without a more coordinated effort to target these non-Western markets, Russia’s energy exports will remain a crucial source of funding for its war in Ukraine.

Moreover, the US has not been entirely free from complicity in this situation. While it has reduced its purchases of Russian oil, it remains a key player in the global energy market. The US also sells oil to countries that have been purchasing Russian oil, further complicating the effort to isolate Russia economically. As long as Russia has access to global energy markets, it will be able to continue financing its war efforts.

The paradox of Western support for Ukraine alongside the ongoing financing of Russia’s war through fossil fuel imports highlights a key flaw in the West’s strategy. While significant efforts have been made to reduce Russia’s energy revenues, the global nature of the fossil fuel market makes it difficult to fully isolate Russia.