Near the start of the war, as the sanctions piled up, the Russian economy was thought to be doomed, possibly forcing President Vladimir Putin to sue for early peace. Almost three months later, there is no sign that a peace deal is about to be negotiated, nor is there much sign that the Russian economy is collapsing. The two may be related.

Yes, the Russian economy is hurting and no doubt in recession. But the economy is also showing annoying signs of resilience, in good part because oil and natural gas revenues are climbing even as Europe tries to wean itself off Mr. Putin’s hydrocarbons as punishment for having launched an unprovoked war that is killing an alarming number of civilians and triggering war crimes investigations.

Last week, the International Energy Agency said that Russia’s oil revenues are up 50 per cent this year even though some refiners are refusing to take Russian shipments. But other refiners are buying as much as they can – China and India are gobbling up the cargoes no longer wanted in Europe and North America. Moscow has been earning about US$20-billion this year – money that is used to fund the war – from the sale of crude and refined products.

At the same time, the sanctions, coupled with the proposed embargo on Russian oil exports to Europe, are putting the Europeans into a low-grade panic that is intensifying by the day as energy prices soar and across-the-board inflation takes off – always a popularity-shredding recipe for any ruling politician.

This week Italian Prime Minister Mario Draghi, calling for a ceasefire and the start of peace talks, indicated that the country’s support for the war is waning. Italy was one of the European countries most dependent on Russian energy and one of the biggest exporters to Russia – until the war began. Recent polls say nearly half of Italians now oppose sending arms to Ukraine and a similar proportion say that Russia should be handed Crimea and the eastern parts of Ukraine it now occupies, if doing so is what it takes to end the war. The figure is double the level of those who think Ukraine should fight to reclaim the territories lost to the Russians.

Sanctions and embargoes are tricky, often hazardous, pursuits. The working idea is that those on the receiving end should suffer far more than those delivering them. In this case, the pain is shared by both sides, though Russia is suffering more. Still, as energy writer Irina Slav points out, Europe’s assumption – that Russia needs to sell Europe its hydrocarbons more than Europe needs to buy them – may not hold true.

Take Hungary. The European Union is struggling to ban oil imports from Russia because Hungary is completely dependent on Russian oil; its economy would shut down without them, all the more so since most of its refineries are incapable of processing non-Russian oil. About two-thirds of Hungary’s oil, and more than 80 per cent of its gas, come from Russia.

And because much of the rest of Europe is addicted to Russian hydrocarbons too, the sanctions are taking on a two-sided flavour. Finland revealed Friday that Gazprom, the Kremlin-controlled gas giant that holds a monopoly on Russian gas exports, will cease gas supplies to Finland on Saturday (since Russia supplies only 5 per cent of Finnish gas, the move won’t hurt much but will act as a warning to the European heavyweight economies far more reliant on Russian gas, notably Germany and Italy).

The sanctions and embargo wars, like the war in Ukraine itself, are getting ugly, with no obvious winners or losers. The West is still waiting for the Russian economic implosion.

In March, shortly after war started, JPMorgan predicted a 35 per cent fall in second-quarter Russian GDP over the same period in 2021. Earlier this month, the Wall Street bank said the GDP hit would likely be less severe than it had forecast. They wrote that the data “do not point to an abrupt plunge in activity, at least for now.”

One of the reasons for Russia’s relative rude health is the country’s oil and gas export revenues are not only intact – they’re rising – even as the EU tries to curtail, and ultimately stop, imports of those fuels (the United States and Canada have already banned Russian oil and refined oil products).

Russia was making fortunes from oil and gas revenues even before the war started as global demand rose. Oil began to surge about this time last year as pandemic restrictions eased off and economies bounced back to life. Brent crude, the international benchmark, is up 73 per cent in a year; OPEC undershooting its oil production target is certainly adding to the upward price pressure, much to the irritation of the Americans. Mr. Putin is not complaining.

As Russia’s hydrocarbon revenues rise, its current-account surplus, which includes trade and some financial flows, is hitting record levels. The Institute of International Finance recently estimated that Russia’s surplus could hit US$250-billion this year, about double the figure recorded in 2021. Meanwhile the Russian ruble, which got slaughtered in the early days of the war, has rallied and is one of the top performing currencies in the world, in part due to capital controls and Moscow’s insistence that Gazprom be paid in rubles, not dollars or euros.

To be sure, Russia is suffering. Various Russian and international forecasts predict Russian GDP will shrink by 10 per cent this year. Russia’s central bank is hobbled by the sanctions on its foreign exchange reserves and Western companies are leaving in droves (though Russian companies are picking up some of those discarded assets at fire sale prices). But the country is not suffering enough to be motivated to end the war to save its economy. That may change, but probably not anytime soon.

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