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Russia is betting on high oil prices to finance its war against Ukraine

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Russia is betting on high oil prices to finance its war against Ukraine. The sanctions limit the amount of raw material it can export, so the Kremlin hopes that the increase in prices and the use of new transport routes to new recipients will offset the losses, writes “Economist” on its website.

In August, declining profits from oil exports reduced the Russian budget’s tax revenues to $8 billion; a year earlier it was USD 13 billion, the British weekly reports, referring to the findings of the consulting company Rystad Energy. The long-standing exchange rate of the Russian currency, which is now almost 100 rubles to the dollar, also collapsed.

So the Kremlin is trying to implement three strategies to increase the revenue needed to replenish the Russian arsenal, the Economist reports.

Three strategies of Russia

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The first method is to get a higher price per barrel of oil since you can sell fewer barrels. Russia it is now more likely to implement this strategy as it cut oil production in parallel with Saudi Arabia, pushing the price to $90 a barrel for the first time this year.

In addition, on September 5, Russia announced that it would extend the cut in oil production by 300,000 tons until the end of the year. barrels per day.

The increase in prices is beneficial to Russia, especially since it has created a flotilla of aging oil tankers, often flying the flags of the Marshall Islands, Panama, ChinaCameroon, Liberia, Belize, Brazil, India and United Arab Emirates. This allows, by increasing exports, to offset the losses that the country suffers due to Western sanctions and the introduction of a cap on oil prices.

Meanwhile, the West is unlikely to enforce stricter restrictions on the sale of Russian oil, fearing it will lead to shortages in the markets, the Economist estimates.

Making money on fuel and using new distribution channels

Moscow’s second strategy is to sell more, more expensive, refined petroleum products, especially diesel fuel. In August, Russia exported more such products than in the same month in the last six years.

The third way for the Kremlin to compensate for the losses associated with the sanctions is to use new distribution and transport channels. Russia is quietly increasing oil supplies via pipelines to Hungarian and Czech.

In addition, Russian exporters have started sending oil via the Arctic Sea, which may reduce the cost of supplies to China, as this is a route by 30-45 percent. shorter than routes starting in the Baltic Sea and the Barents Sea. In 2023, the number of tankers carrying Russian oil via this route has increased eightfold.

However, whether Russia’s profits from the sale of oil will increase significantly will depend primarily on the state of the global economy, concludes the “Economist”.

Main photo source: Shutterstock

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