Why Russia’s Economy Is Holding On

With oil exports strong in April, Putin avoids economic ruin while hammering Ukraine.

Despite predictions of doom for the heavily sanctioned Russian economy, nearly two months into Russian President Vladimir Putin’s invasion of Ukraine, his country’s oil exports to Europe and nations such as India and Turkey have actually risen, and its financial sector is so far avoiding a serious liquidity crisis.

Sanctions may work in the long run, experts say, but for now many of the same countries that are sanctioning Russia are still seriously undercutting their efforts by buying energy from it—in some cases in even larger amounts during April than in March.

“Putin is continuing to make at least a billion dollars a day selling oil and gas, and the lion’s share is from Europe,” said Edward Fishman, a former Europe specialist at the State Department. “Individual European countries are sending military assistance to Ukraine but it’s dwarfed by payments they’re making to Russia for oil and gas.”

Despite Western restrictions on Russia’s financial sector, oil exports are up to 3.6 million barrels a day in April, compared with 3.3 million barrels a day the month before, said Matt Smith of Kpler, a firm that tracks oil cargo ships. “The big takeaway is that Russian crude oil exports are actually higher so far this month than they were last month,” Smith said. “It’s surprising.”

Or as experts from the Institute of International Finance put it in a report this week, Russia’s oil shipments in April are so far proceeding at a “record pace.” Even allowing for the large discount on Russian crude relative to global benchmarks, that means “oil export revenues are likely to surpass by a large margin the same month in previous years.”


Those revenues have driven Russia’s current account surplus to new highs. For the first three months of the year, it amounted to $60 billion, versus $120 billion for the entire year in 2021, supplying the Kremlin with fresh revenues to counteract the sanctions, even though Russia is far less able to buy supplies and parts from abroad due to sanctions bans. Russia is the world’s third-biggest producer of crude oil, behind the United States and Saudi Arabia.

The precise amount of oil that Russia is now exporting, and to whom, remains in some dispute. Experts say some of that crude is still in transport, in some cases to destinations unknown or to storage facilities. Much of it represents an honoring of long-term oil contracts while a European “wind-down” is in progress, said Christopher Haines, an analyst at Energy Aspects, a consulting firm in London.

Other energy experts suggest that Moscow is front-loading or boosting exports from existing stockpiles as it anticipates further Western sanctions on oil (and Western countries are snapping them up for the same reason, encouraged by Moscow’s sharply discounted prices). Russian refining domestically has actually dropped in the interim, Haines said. By early April, Russian oil production had fallen by 700,000 barrels a day, according to the International Energy Agency. That suggests Russia may be diverting limited production to exports rather than domestic refining.

For many European countries, natural gas is even harder to cut off than oil, as it tends to be traded on longer-term contracts through fixed pipelines, and it isn’t as fungible as oil. Though Germany soon after the invasion announced a halt to the new Nord Stream 2 pipeline from Russia, most Russian gas continues to flow into Europe as before. For now, alternative supplies of liquefied natural gas, which can be transported by sea, remain limited, especially in Central and Eastern Europe. To shift to alternative major producers such as the United States (the world’s biggest producer of natural gas, while Russia is No. 2), Qatar, or Canada could take years.