Energy Sanctions Against Russia: Past Impacts and Future Outcomes

Since the invasion of Ukraine in February of 2022, numerous countries and political entities, such as the European Union (EU), have taken action against Russia through the imposition of sanctions. One of the largest areas of focus for these sanctions has been Russian energy. Prior to the invasion, Russia was the third largest source of U.S. oil imports and accounted for nearly half of the total gas imports to the EU. This robust export market provided Russia with significant state revenue, comprising about 45% of the country’s federal budget in 2021.

Even with sanctions targeting this dependency, Russia has largely managed to sustain their oil output and exports through various means such as redirecting shipments to Asia. This weakens the intent of enacted sanctions - like the price caps and natural gas embargoes - to limit Russia’s ability to finance its war.  Despite these actions from Russia, progress has still been made. Secretary of the Treasury Janet L. Yellen recently stated: “Over the past year, we have taken actions with a historic coalition of international partners to degrade Russia’s military-industrial complex and reduce the revenues that it uses to fund its war.” Russia has been deliberate in delaying or simply not publishing its own economic statistics, so it is difficult to gain a full picture available regarding the status of the Russian economy. This lack of transparency coupled with frequent discourse about the actual effectiveness of sanctions creates significant uncertainty about the upcoming months.

Presenting the Puzzle 

While there is evidence to support the claim that the energy sanctions are working, Russia has continued to sustain its economy through various alternative means such as support from China and through parallel imports with other countries. This dilemma presents two questions to consider as global powers move forward in countering Russia. First, what will energy sanctions look like going forward, now that winter is over? And second, what will these sanctions mean for U.S.-EU energy relations going forward? These are questions worth investigating because they help reveal the ways that actors such as the U.S. and the EU have chosen to distance themselves from Russia in light of the invasion of Ukraine, as well as how they failed to do so in other aspects of energy security.

Past Impacts and Future Outcomes

Results of U.S. and EU of not using Russian energy

The impact of decoupling from Russian energy has already resulted in significant problems for the U.S. and EU economies, many of which are still recovering from the COVID-19 pandemic. Higher gas prices and worsening inflation have caused concern for the American public, and in Europe governments have had to stockpile fuel among other measures to ensure their citizens would survive the 2022-23 winter. Given these existing issues, a challenge for future energy sanctions will be how to avoid further interruption of global energy supply chains. According to economist Agathe Demarais, one of the strengths of these sanctions is the fact that they have been imposed multilaterally, which contrasts from past sanctions from the two powers. This current Trans-Atlantic coordination is indicative that future joint sanctions are possible, but whether they will be pursued remains to be seen. Another concern is ensuring that transitioning away from Russian energy is done so in a way that is environmentally sustainable and doesn’t lock in more emissions-heavy types of generation.  

The Path Forward

In looking ahead, it is important to examine the efficacy of currently enacted sanctions and assess whether those could continue to be part of the U.S.-EU strategy against Russia. According to the Center for Strategic Studies, the price cap created by the EU in December on Russian crude oil has had little immediate market impact But over the course of January of this year, it was reported Russia’s revenues from oil and gas exports dropped by nearly 40% due in large part to the price caps and other Western sanctions. Regardless, other pundits have described current and future price caps as “immaterial,” as Russia continues to utilize China, India, and other countries as energy markets. Russia has made countless efforts to circumvent existing sanctions, and it has been successful in some cases because of this aid from third parties. An option that has been pursued in recent weeks is putting more pressure on countries and companies that have helped Russia in evading sanctions. By effectively holding countries like China, Turkey, and Armenia accountable, the U.S. and EU would be able to isolate the Russian economy so that it would experience the full impact of energy sanctions.

In terms of U.S.-EU coordination, it has been made clear that collaboration would continue in a joint statement from the U.S.-EU Energy Council, which affirmed that multilateral initiatives will be pursued in energy policy, technology, and innovation. While Europe was able to survive the winter while it boycotted Russian gas, there are still many challenges ahead in maintaining energy security, one being a concern that Russian gas will still be sold to European customers through Turkey. As previously stated, this issue as well could be addressed by both the U.S. and the EU applying more pressure to Turkey to adhere to sanctions. What is yet to be seen is whether this use of third party pressure will remain an effective strategy or not, especially considering that China’s geopolitical relationship with Russia is still undetermined at this point.