January 29, 2024: Russian claims that they continue to sell their oil at pre-sanctions levels turned out to be optimistic. The problems are that Russia didn’t build pipelines to its two largest customers, China, and India, before the Ukraine war, and now can’t because it lacks the means given the impact of Western sanctions. Those sanctions also mean higher costs for delivering oil to existing customers, plus customers now demand lower prices because of the sanctions risk. In the worst cases Russian receives half the world price for their oil. In the best situations there is still a ten or 20 percent discount. There is a similar situation with shipments of liquid natural gas/LNG.

The worst aspect of all this is that Russian oil sales are now barely profitable. Russia depends on those profits to pay for oil and gas exploration and the construction of new oil and gas extraction and delivery systems, plus maintenance of existing oil and gas infrastructure. The government is so desperate that they have raised prices for Russian customers using oil and natural gas. This adds to the already high inflation in Russia and is very unpopular with the Russian public. Even that is not enough, and Russia’s gas and oil companies continue to suffer enormous losses. In 2023 the losses amounted to $10 billion and in 2024 there are expected to be similar losses. The national oil company cannot maintain, improve, or expand its extraction and delivery systems without those profits. The only alternative is to use cash reserves, but these are already half gone and unless Russia finds better ways to deal with the sanctions their oil and gas sales profits will turn into monetary losses. That is not sustainable and similar situations exist in other economic sectors. Oil has long been Russia’s primary and valuable export. A growing number of Russian enterprises are breaking down and becoming less productive. The government dismisses the extent of these problems but that does not change the negative impact on the economy and military.