High energy prices and continued purchase of Russian gas and oil in the first quarter of 2022 allowed Russia to post the highest current account surplus in recent history, indicating that EU sanctions against the country have only limited effect.
According to figures from the Central Bank of Russia, the country exported goods and services worth $58.2 billion more than the value of its imports, surpassing more than two and a half times the current account surplus it had in the first quarter of 2021.
In the past 12 months, the Russian current account surplus totalled $157.8 billion. This is a higher current account surplus than in any previous year, according to data from the World Bank.
The current account surplus appears to be pushed by the continuing high gas and oil prices, allowing Russia to command a higher price for its own fossil fuel exports that a number of EU countries continue to buy.
While the US banned Russian energy imports, the EU has not restricted the purchase of Russian energy in the short term, as some member states are highly dependent on Russian fossil fuels.
The EU is planning to phase out the imports of Russian coal within four months, but the value of Russian coal only amounts to about 4% of the value of EU imports of Russian gas and oil.
At a meeting on Monday (11 April), foreign ministers of EU member states discussed but did not agree on an oil embargo.
“We do not want to take sanctions that hurt the EU more than they hurt Russia,” EU officials repeatedly say when asked about the European hesitation to take further sanctions.
While Russian energy deliveries are important to many member states, they are also the most important lever the EU has over the Russian economy as the figures below show.
Data by Eurostat. Chart by Esther Snippe.
The continued purchase of Russian energy also supports the Russian ruble. After the US and the EU sanctioned the Central Bank of Russia on 28 February, the national currency took an initial plunge in foreign exchange markets.
But capital controls imposed by the central bank as well as the steady inflow of foreign currency due to the energy exports helped the ruble recover close to levels from before 24 February, when Russia started its invasion of Ukraine.
“The ruble is strengthening due to exceptionally high foreign exchange inflows from energy sales, tight capital controls on ruble convertibility, and low market liquidity,” the deputy chief economist at the Institute of International Finance, Elina Ribakova, wrote in a recent analysis.
While the exchange rate is not set by the free market, the ruble’s stability was nonetheless “real” because it was “driven by Russia’s all-time-high current account inflows,” she argued.
Moreover, Ribakova pointed out that the sanctions would have to be adjusted over time to continue to hurt the Russian economy.
Any adjustment that would seriously hurt the Russian economy would have to address the Russian state’s ability to finance itself through energy exports.
In the past week, the European Parliament approved a motion to ban Russian energy imports by a large majority.
“Our energy addiction, our money, allows the killing of Ukrainians,” the liberal member of Parliament Luis Garicano said, arguing for the ban. “Is it not clear that our gas is tainted with blood and that the guilty are we who finance this monster?” he added.
However, the Parliament has no formal power to decide on such an import ban, which would have to be approved by EU member states.
The European Commission, meanwhile, maintains that the EU sanctions are effective.
“The EU sanctions are crippling the Kremlin’s ability to finance the war,” a Commission spokesperson told EURACTIV in emailed comments, adding that “we continue to work on further sanctions”.
[Edited by Zoran Radosavljevic]