20-05-2025
Russia's worst-kept secret is Putin's greatest weakness
Ravil Maganov ( R) , the chairman of Russia's second-largest oil producer Lukoil and critic of president Putin's(L) war on Ukraine 'died after falling from his hospital window (R) ' . At least six other Russian businessmen, most with ties to the energy industry, have died suddenly in unclear circumstances in the past few months, since the invasion of Ukraine, Sept 2, 2022
By : KEITH KOHL
Fool me once, shame on you; fool me twice, shame on me.
So what happens when you're fooled 16 times? Well, for Europe it looks like the 17th time may in fact be the charm… At least, we can only hope.
Ever since Russian tanks started rolling across the Ukrainian border, the world has been desperately trying to find the sanction formula that would bring Putin to heel.
The first EU package of sanctions targeted against Russia came in February of 2022, when they levied sanctions against 351 members of the State Duma, and 27 other individuals placed economic restrictions on non-government controlled areas of Donetsk and Luhansk, as well as restrictions on Russia's access to capital and financial markets.
Two days later, the EU enacted its second package, which froze Putin and a few high-ranking officials' assets.
Noticeably absent from the early round of sanctions was any decisive measures against Russia's oil and gas exports. In fact, it took roughly ten months until the EU imposed its first ban on Russian oil imports.
Still, Putin persisted.
'What about natural gas?' you ask.
Don't worry, the EU didn't specifically target Russian gas until mid-2024 because member countries like Germany were still buying a huge amount of it to keep the heat on in the winter.
Yet, even when the EU DID go after Russian gas, it was only LNG. The plan to ban pipeline gas from Russia won't be officially decided on until next month, when the EU commission will propose legal measures to ban Russian pipeline gas by the end of 2027 — plenty of time for Putin to draw out the war and get an edge in peace negotiations.
That is, he'll gain the edge WHEN he actually attends those peace talks. He was conspicuously absent from last week's negotiations, which is a little odd since he was the one that suggested them in the first place!
Now here's the rub…
Up until this point, those 16 EU sanction packages accomplished nothing except to move Russian oil exports off the books and onto a
vast shadow tanker fleet
that sold all of those Ural and ESPO barrels to China and India at steep discount.
Even the G7 price capped placed on legit barrels exported out of Russia did nothing more than establish a floor for global crude prices; many of Russia's buyers weren't abiding by the price cap anyway!
Late last week we got wind of the newest sanctions package from the EU. This time, the EU is looking to punish Putin for his absence at his own peace talks in Turkey by going after nearly 200 tankers in the shadow fleet that is being used to ship Russian crude on the black market.
Better late than never I guess. You see, Russia's greatest weakness is its energy exports, which play a significant role for Putin's budget and the country's GDP.
Back in 2022, Russian oil and gas exports accounted for almost 30% of its GDP. If you successfully take those revenues off the table — which in fairness has been happening, albeit slowly — then you'll force Putin to the table.
Last month, Russia's fuel export revenue fell by 6% over March levels. Meanwhile, revenues from seaborne oil exports dropped 14% over the same period.
Russia's oil exports are now at their lowest point in nearly two years. Couple that with dirt cheap oil prices, and it's not surprising that the country's energy export revenues are projected to be slashed by one-quarter this year.
But hey, the 17th time really is the charm, right?
Maybe.
Until next time,
ENERGY AND CAPITAL
