38,525,172,680 euros – to date
How we fill Putin’s war chest
From Sarah Platz
4/21/2022, 6:47 p.m
Because the EU cannot agree on an energy embargo on Russian energy, the Kremlin is sure of future EU payments. Only the contracting parties know exactly how much money the EU is pouring into Russia’s war coffers. But experts assume around 7000 euros per second.
We finance Russia’s war. This is the thesis that has dominated the public debate for weeks. The US, UK and Canada have imposed embargoes, or phase-out measures, on Russian energy. However, a much more important energy customer remains loyal to Moscow: the EU, as one of the largest buyers of Russian raw materials, will continue to import gas, oil and, for the time being, coal from Russia. “The European Union’s dependence on Russian fossil fuels fills Russia’s war chest,” Virginijus Sinkevičius, the EU Commissioner for the Environment, summarizes the dilemma of the member states.
Europe’s problem is undoubtedly an important financial pillar for Moscow. So did the revenues from world oil and gas exports According to the International Energy Agency, almost half of the Russian national budget will be spent in 2021. What is less clear, however, is how comprehensive this source of income is. How much money are EU member states pouring into Putin’s war coffers?
38,525,172,680 euros according to the Calculations by the research organization Center for Research on Energy and Clean Air (CREA) since the beginning of the war of aggression (date February 24) against Ukraine when this text was written. Around 25 billion for Russian gas, 13 billion for Russian oil and 803 million for Russian coal. If you are reading this, it will be many hundreds of thousands of euros more, because arithmetically around 7000 euros more flow from Europe to Russia every second. However, the scientists point out that their calculations are less about the actual payments and more about estimates based on assumed price models.
Complicated pricing formula
“We don’t know how much money Russia has actually received from the EU since the beginning of the war because we don’t know the treaties,” explains Georg Zachmann von Bruegel, a think tank for economic policy, in an interview with ntv.de. The gas supplies in particular are mostly based on long-term contracts between the energy group Gazprom and European companies such as Uniper, EnBW and Wingas. Only European companies and trading partners of Russia know the terms of the contract. “What we can observe very well, however, are the quantities of oil, gas and coal that are delivered from Russia to Europe,” explains the energy industry expert. For example, the oil quantities can be traced relatively precisely based on the routes and loading capacities of the oil tankers. “It’s much more difficult to estimate the price at which the raw materials are bought,” emphasizes Zachmann. “Especially now that market prices are so volatile.”
However, it is known that the contracts are based on a complicated price formula, says the expert and explains this with an observation: “In the past few months we have noticed a zigzag movement in Russian gas deliveries to Europe.” The reason for this could be that the prices in long-term contracts are sometimes linked to the stock exchange price in the previous month. So if exchange prices rise very sharply in a month, the long-term contract customers call off a particularly large amount of gas at the then relatively cheaper price of the previous month. “They have this monthly flexibility within the agreed annual volume.” Because the exchange prices then fall again due to the increased inflows, while the previous month’s price is then high, the European trading partners call up less again in the following month. “Despite fixed contracts, price and demand influence each other,” says Zachmann. The market price plays an important role in this.
Bruegel’s researchers multiplied these values of raw materials, which are one component of prices, by the amount of gas, oil and coal imported and came up with 22 to 23 billion euros that were exported from the EU to Russia within the first month of the war have flowed. To put the order of magnitude into perspective, this is four times what the EU provided in financial assistance to Ukraine over the same period.
Russia has it in hand
Germany alone was supposed to transfer around 200 million euros a day to Russia, which would amount to a monthly bill of 5.6 billion. However, this was confirmed neither by the energy companies nor by politicians. Just recently the federal government explained in response to a request, to have “no information” about the “value of monthly Russian natural gas supplies”. However, it is undisputed that Germany accounts for a significant part of the European bill. Around 55 percent of imported natural gas comes from Russia. German industry and people’s everyday lives depend on Russian energy, says Chancellor Scholz. The crucial reason why he strongly opposes an immediate European embargo on Russian energy.
The West will probably continue to fill Russia’s accounts, with incoming payments likely to be significantly higher. Because the prices for raw materials, especially for gas, are rising and rising. “While the price of oil has doubled compared to last year, the price of gas has quintupled,” says Zachmann. On the one hand, this is due to a particularly energy-intensive recovery phase in the industry after the Corona crisis. On the other hand, Russia has a kind of monopoly on gas deliveries in Europe, because while Russian coal accounts for only a small part of European energy imports and oil is easier to buy from other traders, many EU member states are highly dependent on Russian gas – also because of the existing infrastructure. Moscow already knew how to use this a year ago.
“Last summer, Russia started turning the volume screw,” explains Zachmann. In contrast to the sales that had been customary up to that point, it seemed that gas quantities were no longer offered on the short-term markets or via Gazprom’s subsidiary, but only long-term contracts were served. The result: Europe’s gas storage facilities were becoming emptier, demand rose – and with it the price. “At the time, we suspected that Russia wanted to put pressure on Europe and the commissioning of Nord Stream 2,” says the economist. “But then came the troop deployments on the border with Ukraine and it struck us like scales from where Moscow’s changed export policy actually came from.” Zachmann suspects that the fact that German politicians hardly reacted at the time could be because “Germany also wanted this pipeline.”
“The shock must be as great as possible”
In addition, Putin’s raw materials business is also benefiting from the aggressive war itself. “The discussions and uncertainties are huge on all sides,” says the expert. Every country is now trying to store as much gas as possible. Show like this Evaluations by Bruegelthat the amount of imported gas increased significantly at the beginning of the invasion and is only now, two months after the start of the war, falling back to pre-war levels. That drives up the price.
The more money flows from the EU to Russia, the more the member states are arguing about whether the warmongers from Moscow should continue to receive this income. While Chancellor Scholz emphasized on “Anne Will” that Putin “can’t do anything with the money from the West anyway” because of the sanctions, experts agree that the high foreign exchange earnings are helping to stabilize the ruble, which is particularly important at the moment, and that the Kremlin is thus making a contribution prevent violent inflation. In addition, Russia can use the hard currency to pay for imports and reward mercenaries. If the Kremlin didn’t need the money urgently, it would probably have turned off the gas in Europe long ago. “It would certainly give Russia quite a headache if it lost this massive amount of liquidity that we are providing,” predicts Zachmann.