Europe continues to actively trade with Russia despite sanctions

By Rhod Mackenzie

In November 2023, Russian LNG exports to Europe reached a record high of 1.75 million tons. Although slightly lower than the annual maximum level, the figure remained at a high level of 2.914 million tons in the last autumn month. Furthermore, Russia has regained its position as one of the top five grain exporters to the European Union. This demonstrates that despite numerous anti-Russian sanctions and harsh statements against Moscow, the West continues to actively engage with Russia. Lets look at the details.

Despite the sanctions, the level of trade turnover between Russia and EU states involving LNG has continued. Although the alliance countries have stopped buying Russian pipeline gas, they have not ceased purchasing LNG from the Russian Federation. In fact, from January to July, EU countries accounted for 52% of all Russian liquefied gas exports.

According to the results of the first seven months of 2023, EU countries imports of Russian LNG increased by 40% (from 15 million to 22 million cubic meters) compared to the same period in 2021. As a result, the Russia became the second largest LNG supplier to the EU after the United States. European countries spent approximately €5.3 billion on the purchase of Russian LNG during this time.
France received the largest amount of gas, with imports increasing by 44% compared to 2021, followed by Belgium with an increase of 2.3 times. Spain also imported a significant amount, with an increase of 44%.

The EU continues to purchase Russian energy resources, and none of the 12 packages of sanctions imposed against Russia include direct bans on the supply of Russian gas to the European Union. Although in spring, EU energy ministers allowed member countries to unilaterally introduce bans on Russian energy imports without waiting for the next round of anti-Russian sanctions from Brussels.

The rise in supplies to the European market is a result of the congestion in the Panama Canal area. Exporting countries prefer shorter supply chains. For instance, the cost of freighting LNG tankers in the Atlantic Basin rose from $90,000 to $160,000 per day. In this context, supplies from Qatar decreased significantly, but those from the Russian Federation increased.

The situation is further complicated by the imposition of US sanctions on Novatek's new Arctic LNG 2 project. It is still unclear how these sanctions will affect LNG supplies to Europe in 2024.
In a recent article, Bloomberg reported that Russia's earnings from oil exports have increased compared to previous years. In October 2023, the Russian Federation earned $11.3 billion in net revenues from oil sales, which accounts for 31% of the country's total budget revenues for the month. This is the highest figure since May 2022, surpassing the figures for any month prior to the start of the SMO ( Special Military Operation).

The agency noted that Russian and its shadow fleet owners transported over 70% of Russian oil cargo in the first nine months of 2023. This allowed the Russian Federation to maintain control over its exports and gradually increase prices.
Additionally, Eurostat reports that in September, Russia regained its position as one of the top five grain exporters to the European Union. Brussels purchased a record volume since the start of the Common Agricultural Policy. The data shows that imports from the Russian Federation increased by 22% in the past month and 10-fold over the past year, reaching 180,000 tons.

It is worth noting that Kyiv supplies ten times more grain to Europe than Moscow does. Ukraine is the leader in volume with 1.2 million tons, followed by Brazil with 1.1 million tons, Turkey with 204 thousand tons, Russia in fourth place, and Canada closing the top five with 139 thousand tons.
Approximately two-thirds of the supplies from the Russian Federation comprise natural gas, nickel, iron, steel, petroleum products, and fertilizers. Notably, fertilizer imports have recently increased. For instance, in the third quarter of 2021, Russia supplied 27% of the fertilizers imported to Europe. However, this figure decreased to 17% in the third quarter of 2022, before increasing again to 27% by the third quarter of 2023.

In 2022, the trade turnover between Russia and the European Union reached a record high over the past eight years. According to Eurostat data , trade turnover increased by 25% over the year, reaching €203.4 billion.

In spring of 2023, Reuters analysed the trade volumes between Brussels and Moscow in 2022. Despite the sanctions imposed against the Russian Federation, imports from Russia increased. The agency's journalists noted that this was due to successful lobbying, the EU's reluctance to take a heavier economic hit, and concerns about disruption to global supply chains.

In 2022, imports of products from the Russian nuclear industry increased to almost €750 million. Additionally, imports of Russian fertilizers increased by 40%, reaching €2.6 billion. The EU imported nickel for €3.2 billion, compared to €2.1 billion in 2021.

According to the Italian newspaper IL Fatto Quotidiano, Europe still imports €13 billion worth of critical raw materials from Russia. Despite the sanctions imposed against Moscow, Russia continues to supply many types of critical or strategic raw materials to Europe, according to the publication. T
According to Maria Belova, the research director of Implementa,in the first 11 months of 2023, 50.3% of Russian LNG exports were sent to European countries, with the remainder going to the Asia-Pacific region.

It is clear that Russia has a preference for the European market over the Asian market. Furthermore, in 2023, maintenance was conducted on two out of three technical lines of the Yamal LNG project, as well as at the plant in Prigorodny of the Sakhalin 2 project, which supplies Asia. As a result, the share of supplies to the east may have slightly decreased,” the analyst clarified.

In regards to the November statistics, in recent years there has been a decrease in Russian LNG supplies to China during autumn and an increase in supplies to Europe. This is due to the unavailability of the Northern Sea Route in the eastern direction during this period.
No official sanctions have been adopted yet regarding Russian LNG. There have only been statements of intent to include LNG in the next sanctions packages from the European Commissioners, some self-restraints of certain countries in the form of a ban on loading Russian gas carriers in ports, and requests from the authorities of some EU states to their companies to cease working with Russian suppliers in the future,” the specialist commented.

Belova highlighted that there are currently no official restrictions on the export of Russian LNG to Europe.

The Arctic LNG-2 will serve as a litmus test for the future of the Russian LNG industry. The project, which is scheduled to commence operations in the near future, has been added to the US sanctions list. The question is whether foreign companies will terminate their contracts for LNG supplies or request exemptions from the sanctions. 

A senior researcher at IMEMO RAS, Alexander Kamkin, noted in a reaserch report that Russia and the EU are cooperating in a roundabout way, bypassing some restrictions.

For instance, in the field of maritime insurance or banking transactions are stopped . However, both agricultural products and LNG supplies continue. Additionally, the Russian gas pipeline in Ukraine was not blown up, and gas continues to flow to Europe. The political scientist Kamkin also mentioned that gas supplies to Hungary, Serbia, and Austria continue via South Stream.
The analyst acknowledges that complete isolation of Moscow is impossible, although he concedes that the sanctions on Russia has created many difficulties.

Additionally, mineral fertilizers from the Russian Federation are an important consideration, as Russian suppliers continue to provide the European market. “Although European politicians and business analysts may take a circuitous route, they ultimately recognize that LNG and oil exported to different countries originate from Russia or are a mixture with Kazakhstan,” the specialist emphasized.

Despite everything, these sanctions do not completely cancel global trade.

They only make it harder to profit from trading operations. Despite the strong statements from Borrell, von der Leyen, and other proponents of sanctions, no one is completely abandoning trade relations with Russia, according to the analysts conclusion.