Summary.
Russia’s invasion of Ukraine on the 24th of February 2022, met a wide and encompassing litany of Russian focussed sanctions. The European Union, the United States and other UN members imposed these sanctions. Sanctions are the amongst the toughest actions another country can take without going to war. It aimed the sanctions against Russia to cripple its ability to fund its invasion of Ukraine. Because of the scale of Russia’s defiant act, the sanctions have been far-reaching. They target the Russian economy, Oil and Gas, wealthy individuals and Russian flights from entering international airspace. However, despite the extensive use of sanctions Russia is still funding its war in Ukraine. And the Rubel is the strongest it has been against the Dollar since 2018.
Key Judgement 1: It is highly likely that Russia will continue to expose loopholes in sanctions allowing Russian Oil into Western economies over the next 6 months.
- Following the invasion of Ukraine by Russia on the 24th of February 2022, the EU immediately revealed its first batch of sanctions. These targeted key Russian financial sectors, key individuals and energy and transport sectors. (source)
- Despite the sanctions imposed on Russia’s oil and gas industries, loopholes will allow blended oil to flow into the UK well into 2023. This is possible because of a loophole that allows companies to import CPC blend Oil, a mixture of Russian and Kazak crude oil. (source)
- Another loophole in US sanctions allows for oil refined outside of Russia to be shipped directly to the US. In the first quarter of 2022, India imported 682,000 barrels of crude oil. And in June 2022, 2.7 million barrels of refined fuels shipped to the US. Five of the ships departing from Jamnagar in India. (source)
- Western dependence on Russian oil and gas allow these loopholes to exist. It is these loopholes that are funding Putin’s bottom line. Allowing for the continued flow of capital to fund the invasion.
Key Judgement 2: It is likely the Russian economy will continue to shrink over the next 6 months, bringing recession and poverty to its citizens because of economic sanctions.
- According to the Russian Central Bank, its economic crisis will worsen in the third fiscal quarter of 2022. Citing a figure of 7% fall in GDP in Q3 of 2022. (source)
- Since the invasion of Ukraine, over 1000 companies have exited the Russian market. Because of this many Russians will find themselves unemployed. With further companies to follow, the unemployment rate will increase, along with those living under or on the poverty line. (source)
- Furthermore, over 600,000 Russians have reportedly lost their jobs because of the withdrawal of many Western companies from Russia. (source)
- Sanctions take years to fully take hold in autocratic societies. However, it will soon be the case that many industries will come to a standstill. They will no longer be able to find parts for repairs, especially in the aviation industry. (source)
Key Judgement 3: It is probable that Western countries will struggle to cope with the decline of Russian gas over the next 6 months following sanctions.
- On the 5th of August 2022, Gazprom, Russia’s state-financed energy supplier formally switched off supplies to Europe via Nord Stream 1 pipeline. Threatening that supplies will not return until the EU lifts all imposed sanctions. (source)
- The lack of supply currently cripples Europe. It has already increased the UK price cap on energy bills by 80% since April 2022. And energy prices for UK households and businesses are expected to rise. (source)
- Inflation in the UK is already above 10% for the first time in 40 years and will reach 13% this winter. This is largely due to the increase in energy prices brought about by the Russian invasion of Ukraine. (source)
Intelligence cut-off date: 6 September 2022
