Opinion: Putin and the European Chaos

The oil revenue cash tap gives Putin a margin of leeway, who can afford to sacrifice a significant part of its gas revenues even when restricting his sales to Europe.

Aug 23, 2022 | By Michel Santi
Putin Russia

They were all grossly wrong, those who predicted a collapse in Russian oil production. Putin effectively defied all forecasts because, with 10.8 million barrels/day (mb/d) pumped last July, Russian oil production was almost at the level of 11 mb/d last January, before the war. In fact, it has been three months since this production recovered significantly from the air pocket suffered in the months following the outbreak of the conflict, as Russia replaced its good European refiner customers with other markets.

Asia in general and India in particular, but also the Middle East and Turkey represent the new markets, even if certain European buyers persist in their purchases of Russian oil while waiting for the point of no return of European sanctions taking place next November. Moscow no longer bothers to offer discounts — which were massive during the winter in order to attract new customers — as the country now seems sure of its trajectory. True the context is globally very tense in terms of energy supply from which Russian leaders benefit greatly. To achieve this, Russian exporters can count on the emergence of new “traders” based in the Middle East and in certain Asian countries who sell — at juicy margins — Russian crude to eager buyers.

Russian President in the Middle East

However, what qualifies as a Russian success is not so much economic and financial as above all political. The West — for its part — has completely failed to convince OPEC+ (the Organization of Exporting Countries and its allies) to withdraw from their alliance with Russia since the very opposite actually happened. Led by the supposed preferred allies of the West, namely Saudi Arabia and the United Arab Emirates, this organisation only symbolically raised the oil production of its member nations, as a scathing and humiliating disavowal to President Biden who had purposely taken a pilgrimage to Riyadh to pay a contested and a questionable tribute to MBS.

Russian President in the Middle East

In the end, this oil revenue cash tap, which has recovered well, gives Putin a margin of leeway, who can therefore afford to sacrifice a significant part of its gas revenues by restricting his sales to Europe. It’s simple: Russia has recently garnered so much oil revenue, it has been selling so much oil, that it can afford retaliatory measures on natural gas against Europeans who — although remaining determined — are nevertheless barely aware of the disasters awaiting them. Our electricity consumption prices will inevitably rise by around 60 to 80 per cent, or even double in some European countries. Very soon, our leaders will be faced with impossible choices because the devastation caused to the various European economies by this unprecedented escalation in energy prices will be extraordinarily painful.

Whatever the angle of analysis, Vladimir Putin is on the way to winning this energy war. His victory is difficult to dispute on multiple fronts, while hundreds of millions received daily by Russia from its oil sales ensure the support of his population.

Michel Santi

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