The result is that the discounts cited by Western officials are inaccurate—and often exaggerated. Customs data from India and China show that they paid more for their Urals oil this winter than is widely thought. Another reason true pricing is hard to assess is that everyone has an interest in pretending that prices are low. Russia’s oil firms are keen to minimise their tax bills and Indian refiners want to squeeze other suppliers.
Even more striking is the extent to which Russia’s export machine has become less reliant on the West’s shipping and financing infrastructure, and has therefore escaped the scope of sanctions. As we report this week, a shadow trade that uses a parallel system is booming. Before December, more than half of western Russian crude was handled by a European shipping or financing firm. That share has since fallen to 36%.
Could the next batch of sanctions, on refined oil, do more damage? At first glance it seems that they could curb Russian exports of diesel and other products in the near term. From February 5th, Europe will no longer buy such fuels, and it will make the use of its shipping and insurance firms subject to compliance with a price cap. Russia will not easily find buyers to make up for the loss of demand from the eu: both China and India have refineries of their own. And substituting for Europe’s refined-oil tankers will be hard. A chunk of Russian refined products, which account for a third of the country’s oil-export revenues, could thus go unsold, raising global prices.
Yet over time these effects are likely to fade. Unable to sell refined oil, Russia would probably boost its capacity to export more crude instead, further energising the shadow trade. Europeans may find themselves turning to China and India for diesel, but it would increasingly be produced from Russian crude. As more Russian oil flows outside the West’s control, blockades will become even less effective. For the West, the lesson is that sanctions are no substitute for sending Ukraine more money and arms. Shunning Russia’s oil will not win the war.
