When the European Union finally made the decision to ban 90 percent of Russia’s crude oil imports by the end of the year, the bureaucrats in Brussels were jubilant. The EU’s adoption of oil sanctions was thought be a big blow to Russian President Vladimir Putin, who depends on the revenue generated by his country's oil exports to fund his war in Ukraine.
It doesn’t take a genius to figure out why European officials were so thrilled. The EU imported 2.2 million barrels per day of Russian crude last year, amounting to tens of billions of...

When the European Union finally made the decision to ban 90 percent of Russia’s crude oil imports by the end of the year, the bureaucrats in Brussels were jubilant. The EU’s adoption of oil sanctions was thought be a big blow to Russian President Vladimir Putin, who depends on the revenue generated by his country’s oil exports to fund his war in Ukraine.

It doesn’t take a genius to figure out why European officials were so thrilled. The EU imported 2.2 million barrels per day of Russian crude last year, amounting to tens of billions of dollars in profits for the Kremlin every month. Prohibiting 90 percent of that supply, with the exception of Hungary (the country received a waiver after its prime minister, Viktor Orbán, held up a deal for about a month), would be a gargantuan loss for the Russians at a time when its troops are engaged in their largest war since the ten-year occupation of Afghanistan four decades earlier. That was the theory, anyway.

The global oil market, however, isn’t exactly cooperating. Far from celebrating, the EU today is scratching its head over the amount of money the Russians continue to scoop up as a result of high oil prices and Moscow’s ability to counteract the West’s sanctions regime. Indeed, Moscow is earning more money from oil exports than it was before the war in Ukraine began. The Center for Research on Energy and Clean Air, an organization in Finland, calculates that Russia’s export prices for fossil fuels in general are about 60 percent higher than they were last year. Asked by lawmakers whether Moscow was raking in more money from oil sales now than in the months before the war, Amos Hochstein, the Biden administration’s envoy for energy affairs, wasn’t cute with his answer: “I can’t deny that.”

What’s going on here? There are two factors to consider.

The first and most obvious is the extremely high price of crude oil. On June 21, Brent Crude opened at $114 a barrel, approximately 55 percent higher than this time last year. For major petro-states like Saudi Arabia, the United Arab Emirates, and Russia, these are the good old days, when high demand and tight global supply produces record profits. Naturally, the more profits Russia earns, the more resources Putin will have available to finance his war of aggression and ensure discontent on the Russian street doesn’t get out of hand.

Current prices are so sky-high, in fact, that Russia continues to make hefty earnings even after offering significant discounts to buyers. At spot rates of about $73 a barrel, and based on current market prices, customers are saving about 51 percent if they go with Russian Urals crude instead of Brent (how long the current supply-demand dynamics will hold is another question entirely).

This leads to the second reason why the EU’s oil sanctions aren’t having an immediate effect: Russia is reworking its entire oil distribution network. The Russians aren’t standing around; they’re creating new opportunities. Before the war, about 60 percent of Russia’s oil exports went to Europe, with the rest going to China. Now, the Russians are redirecting previously Europe-bound oil cargoes to countries in Asia, which are looking for the cheap and most reliable energy supply they can get. In May, Russian crude exports to China increased by 28 percent from the previous month, replacing Saudi Arabia as Beijing’s biggest source of the black stuff. India is receiving 760,000 Russian barrels a day, an exponential jump compared to previous levels, which were near zero.

The Biden administration is obviously disappointed that partner nations are prioritizing their economies over their morals. Biden urged Indian Prime Minister Narendra Modi during a virtual summit in April to lay off buying more Russian crude and offered help in acquiring different energy sources. Some lawmakers, like Senate Foreign Relations Committee Chairman Bob Menendez, have called India out for giving Putin a financial lifeline; others have hinted at possible US sanctions against the Indians. But would Washington really go as far as undermine a strategic partnership that successive presidents have cultivated since the dawn of the century (and one, it must be stressed, that the administration is hoping to enlist in a balancing coalition against China)? More importantly, should it?

American and European policymakers evidently fooled themselves into believing that cutting off Russian oil would be the beginning of the end for Putin’s war machine — or at least force the Kremlin to deplete whatever reserve funds they have left on the war. But the market has something else in mind.