The world can end Russia's aggression by depriving it of oil revenues

Wednesday, 27 March 2024 — , Head of the Office of the President of Ukraine
PHOTO: Imago Stock and People/East News
Hundreds of billions in oil and gas profits every year are fuelling the Kremlin’s imperialism and revanchism

The tectonic shifts that determine the fate of humanity often seem to us to happen suddenly.

But that's not true. They are usually just the result of previous events. Like Putin's aggression against Ukraine. Or the collapse of the USSR.

What unites both of these – the collapse of the Soviet empire and the current attempt to restore it – is oil.

And it is oil that could put an end to the Russian dictator’s revanchist ambitions.

On 26 January 1985, the Soviet government newspaper Izvestia published a landmark report. According to data from the Central Statistical Office, in 1984, 613 million tonnes of oil were produced – 3 million tonnes less than in 1983, and significantly below the planned 624 million.

These were huge losses, as oil accounted for 60% of the USSR's foreign currency earnings, and Urals CIF Med, the main Russian brand, was priced at US$28.55 per barrel.

As a result, despite growth in industrial production, national income increased by only 2.6% against a target of 3.1%.

Even the reduction in subsidised exports to Eastern European allies did not help much. That was not the end. And not even the beginning of the end. These were just temporary difficulties – a constant of life in the Soviet Union.

But the fundamental vulnerability of the Soviet economy had been exposed. Even though Moscow's official statistics, then as now, were a form of disinformation, they could not hide the problem, only downplay it.

The problem was that the old oil and gas deposits were being depleted, and the USSR needed Western technology and Western money to increase production.

In the 1970s, Moscow took advantage of the conflict between Arab countries and the West and secured its place among the world's top energy exporters.This enabled the Kremlin to fund the Soviet military-industrial complex, aimed against the West, with Western petrodollars, and to use its role as an oil supplier to weaken resistance to its ambitions.

The invasion of Afghanistan and attempts to suppress democratic movements in Poland were direct consequences of this. So in turning energy resources into a geopolitical weapon, Vladimir Putin's regime hasn't come up with anything new.

This strength of the USSR became its weakness. The beginning of the end of the communist empire came in 1986.

Its backbone was broken by coordinated actions by Riyadh and Washington. King Fahd and President Reagan’s ability to come together in order to confront the Soviet threat to world security is admirable.

The plan was simple. Raising the price of a barrel of oil by just one dollar annually brought the USSR a billion dollars, but decreasing it by 10 dollars led to a loss of 10 billion dollars in hard currency.

Saudi Arabia, the most influential player in OPEC, also dared to go against the opinions of other OPEC members by rapidly increasing production. Meanwhile, the United States imposed an embargo on technology exports to the USSR, as well as upping its own production.

As a result, oil prices plummeted almost threefold to US$12 per barrel. The colossal losses undermined the Soviet economy. The money for promoting global influence through force and other hybrid methods simply ran out.

And even when oil prices climbed to US$15-23 in 1987-1991, that could not save the Soviet monster, which carried on producing tanks and missiles rather than consumer goods.

We all know what happened next. The Intermediate-Range Nuclear Forces Treaty of 1987. The withdrawal of Soviet troops from Afghanistan, the fall of the Berlin Wall, the triumph of Solidarity in Poland, and the Velvet Revolution in Czechoslovakia in 1989. The Conventional Armed Forces in Europe Treaty of 1990. American humanitarian aid (the surplus frozen chicken quarters known as "Bush’s legs") in Moscow.

And finally, the collapse of the USSR in 1991. Its status as the world's largest nuclear arsenal didn't save it.

But as subsequent events have shown, Russia, intoxicated by oil dollars, inevitably began to dream of world domination again. Economic growth and the so-called "stability" of the Putin regime are a direct result of high oil prices.

Direct oil and gas revenues never made up more than 10-11% of the USSR budget, but in Russia in 2011-2014, they exceeded 50%. And that’s without even taking some revenues generated by the energy companies into account.

In the past decade, the oil and gas industry’s impact on the aggressor country's economy has been even greater. According to economists, by the end of the 2000s this impact had doubled compared to Soviet times.

In recent years, oil and gas have accounted for about 60% of Russia's total exports of goods and 40% of the federal government's revenues.

These hundreds of billions in oil and gas profits every year have fuelled the Kremlin’s imperialism and revanchism.

Here lie the roots of Moscow's official ultimatums about effective NATO capitulation and the return of Russia's control over all of Eastern Europe.

It was its eye-watering export revenues that convinced the Kremlin that the world would turn a blind eye to its attack on Georgia, its Syrian adventure, and its invasion of Ukraine. Oil revenues continue to ensure that the Russian defence industry can keep going uninterrupted and get ready for new acts of aggression.

What can be done to counteract this? Common sense and experience clearly show that sanctions against Russia’s oil industry need to be tough and swift, so that Moscow does not have time to adapt to the pressure.

However, that is not what is happening now.

Sanctions pressure is undoubtedly having some effect. Our international sanctions group estimates that restrictions on Russian oil, including the EU embargo and the G7 price cap, have cost the aggressor US$113 billion in export revenues since the full-scale invasion began.

Last year the Russian budget lost nearly a quarter of its energy revenues compared to 2022. However, those revenues still amounted to US$102 billion.

Let me remind you that a good third of the Russian budget goes towards funding the war machine in some way.

That's why Ukraine continues to insist on reducing the profitability of Russia’s oil trade.

Lowering the price cap to US$30 per barrel is just one way of doing that.

Another tool is the gradual restriction of access to technology, including through sanctions against intermediaries. Another is the strengthening of market pressure.

But this is impossible without the leadership of Saudi Arabia and the United States. Just as in the 1980s, increasing production will curb Tehran as well as Moscow. This is the key to peace not only in Europe, but also in the Middle East.

And most importantly, cheaper fuel will give a powerful new boost to the economic development of the US and its allies and ensure their continued global leadership.

So this isn’t about missed profits. It's about investing in security and progress. Isn't that worth it?

Militant dictators always see compromise and goodwill as weakness. Russia is no exception.

The Kremlin is not capable of equal dialogue. It simply simulates it. To rely on its rationality is to delude oneself.

In 2014-2022, Ukraine conducted about 200 rounds of negotiations with Russia, seeking a peaceful resolution to the conflict. We agreed to ceasefires dozens of times, and every time Russia would break them as soon as it was ready to continue its aggression.

As long as Moscow refuses to recognise Ukraine's international statehood and sovereignty, any attempts at peacemaking will be doomed.

Ruscism is the Russian version of Nazism. Genocidal practices, concentration camps, torture, destruction of cultural artefacts, the ideology of historical mission and the superiority of a particular nation – the resemblance is easily recognisable.

Hitler’s ideological capture of world leaders led to a pretence of compromise which cost the destruction of two democratic states in Central Europe. It all ended with the largest war in history. Putin’s capture of world leaders is taking the world down the same path.

Putin's Russia is cosplaying the Third Reich and preparing for new wars. We can see evidence of this in writing, including a letter to Putin from Duma Speaker Vyacheslav Volodin that was recently published by the Ukrainian Cyber Resistance.

Negotiations with the Kremlin are a zero-sum game. It's all about capitulation.

The only question is whether you want to accept it or call it out. There is no third option.

Despite all the disagreements between NATO and EU member states, despite all the disputes between the US and their partners in the Middle East and Europe, there is one question on which everyone is of one mind: do you want the restoration of the USSR and its sphere of influence, an endless series of crises and local wars? Hardly. Especially since this time everything will be much worse.

The Soviets supported leftist movements everywhere. Putin is forging a reputation as a conservative leader. But this is far from the truth. Putin is bound by no ideological guidelines other than the pursuit of power and will support any marginals anywhere just to sow chaos.

The basis of his strategy is duplicity and unpredictability. There is simply no other way for Moscow to compensate for its loss of the USSR’s resources.

Russia uses its nuclear weapons to intimidate the rest of humanity. Yet Russia itself is extremely vulnerable to its reliance on oil. All we have to do to save the world is turn off Russia’s fuel tap. Just as King Fahd and President Reagan did.

By the way, weapons-grade Soviet uranium later became fuel for American nuclear power plants.


Columns in the Expert Opinion section are not editorial articles and solely reflect the author's views

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