President Vladimir Putin
acknowledged that Western
sanctions have stymied Russia’s energy industry, the
country’s economic engine,
and that it will need to reorient oil and gas sales from
markets in Europe to Asia.
Russia’s biggest energy customers by far are in Europe.
While the EU hasn’t banned
Russian oil and gas deliveries,
sanctions have blocked some
funding, technology and equipment necessary for the development of the sector. Some
traders have avoided Russian
oil, which is currently offered
at a heavy discount to international benchmarks. The U.S. and
Canada have both announced
embargoes on Russian crude.
Difficulties selling oil have
backed up through Russia’s
energy supply chain, leading
to a drop in crude-oil production that analysts say will intensify in coming months.
The challenges Russia’s energy industry is facing underscore the impact of Western
sanctions on the country’s
economy. Economists are predicting a brutal recession,
coupled with a rise in unemployment and inflation.
The oil-and-gas industry is
the backbone of the Russian
economy, with sales making up
45% of the federal budget in
2021. Beyond customers shunning its oil, Russia is also facing
infrastructure problems at its
more than 150,000 oil fields,
many of which are old and need
investment and equipment to
be maintained, analysts say.
The International Energy
Agency forecast that, starting
in May, nearly three million
barrels a day in Russian production will be turned off.
That would reduce output to
fewer than nine million barrels
a day, a larger pullback than
other analysts have predicted.
Mr. Putin warned that attempts by the West “to squeeze
out Russian suppliers, to replace
our energy resources with alternative supplies will inevitably affect the entire world economy.”