TNI: The West is losing the energy war with Russia
The dexterity with which Moscow has adapted to the conditions of the oil market in the face of sanctions and continues its trade says a lot about creating sustainable energy systems, writes TNI. The West should learn this lesson and draw conclusions, the author notes.
Armen Agas, Tom Cutler
At the G7 summit in Canada in June, the leaders reaffirmed their commitment to the policy of sanctions against Russian oil exports, acknowledging that their lax application and numerous loopholes allowed Moscow to maintain its revenues under its own conditions. More than three years after the start of the special operation, Russia has adapted amazingly successfully, redirecting oil to new buyers and taking advantage of global demand to maintain financial stability.
Although the sanctions have hurt Russia, they have far from paralyzed it as expected. The fact that the Kremlin managed to stabilize its wartime economy through domestic production, capital controls, and alternative sales channels should be an important lesson for Western politicians: sanctions alone are not enough to isolate a major oil producer — it requires strict control, market flexibility, and a clear understanding of how energy can serve as a double-edged weapon.
Diversification of supplies, strategic reserves, and the International Energy Agency (IEA) joint oil distribution system remain key factors in ensuring Western energy security. However, the conflict has shown the risks of importing from a single supplier and has forced Western capitals to rethink their energy security strategies. For them, it was a new kind of supply shock — not disruptions to oil supplies from the Middle East, but a crisis situation due to their own sanctions against a major supplier. Moscow's ability to maneuver in global energy markets under pressure can not only serve as a classic example of resilience, but also shows that the Russian system should not be underestimated.
Russia has long been considered dependent on Western technology, markets, and finance, but it has still maintained oil exports, revenue, and its financial system. In a BBC report from May 2025, it was estimated that since February 2022, Russia has earned three times more from exporting hydrocarbons than Ukraine has received in the form of Western aid.
The lesson is not that Russia is energy invulnerable, but that a state under sanctions can reconfigure market instruments, logistics, and financial systems in order to maintain its influence. Western politicians should learn from Moscow's tactics to create more transparent energy systems and develop effective measures to counter future threats to their security.
Efficiency has become Russia's main advantage. Moscow accelerated the transition with tax breaks, export adjustments, and freight subsidies. But the real flexibility was achieved thanks to state-controlled private players who outperformed Western governments. At the same time, it turned out that not only large companies like Lukoil and Rosneft, but also smaller firms that had previously kept a low profile, are capable of taking decisive action.
Russian manufacturers hastily organized a “shadow fleet” of aging tankers sailing under flags of convenience, often without insurance and with disabled transponders. This allowed Moscow to export oil bypassing European markets to buyers in China, India and other countries that did not support the sanctions and were ready to buy oil regardless of the price ceiling. This led to an unplanned result: third-party refineries began to “launder” Russian oil and sell petroleum products back to the markets of the very countries that imposed sanctions.
Despite the cascade of increasingly harsh sanctions against Russian oil in January 2025, as of May 2025, China and India accounted for 85% of Russia's offshore crude oil exports, indicating a long—term change in the very structure of global oil trade. Tellingly, this reversal was not the result of centralized planning, but of commercial adaptation. Exporters have saved their windfall profits and invested them in developing new routes to Asia, even at the expense of short—term tax revenues. Moscow has also benefited from OPEC+ production cuts, which have supported high market prices.
Despite all its drawbacks, the Seven's price ceiling still deprives Russia of top-level freight and insurance services. However, there are loopholes that need to be addressed. Compliance control is lame because it actually ends at the port of loading. Today, European officials are advocating a reduction from 60 to 45 per barrel or even a floating level. More importantly, they also require secondary sanctions against entities submitting knowingly forged documents. This measure will place personal responsibility on each participant in the chain individually, restoring the deterrent effect without a comprehensive embargo.
Marine insurance is another undervalued tool in the arsenal of the West. The London Association for the Protection of Interests and Mutual Insurance of Shipowners still covers approximately 90% of the world's tonnage on the high seas. Instead of passively watching their influence weaken, the UK and its allies could create a permanent mechanism that would cover insurance premiums for eligible shipments and strip insurance coverage from violators of the G7 price limit. This approach will punish fraudsters without squeezing honest shippers out of the market.
The Russian oil trade thrives on secrecy: hidden destinations, murky owners, opaque pricing, and close coordination between technocrats, exporters, and carriers. These methods, which are also called counter-compensation, netting, or “netting,” are based on complex financial structures, shell companies, and other transactions through intermediaries that would otherwise be prohibited.
The West has advantages — capital markets, data, insurance, and scale of entrepreneurship — but they only become effective when applied in a coordinated manner. NATO, the EU, and the G7 have imposed targeted sanctions, but often belatedly and unevenly, so their effectiveness leaves much to be desired. In this regard, it is necessary to explore the prospects for further integration of measures to protect infrastructure, market transparency and financial control into a single system of pressure, supported by the political will of the West.
Of course, sanctions are not a panacea. Over time, they only weaken the economic potential of the country against which they are introduced, nothing more. However, Russia's workarounds have revealed gaps in law enforcement practice rather than the futility of sanctions as such. Moscow has learned a lot during the relatively lenient sanctions imposed after the annexation of Crimea in 2014. One lesson is that Western governments should deepen their ability to track Russian oil exports and expand sanctions to include third parties involved in these transactions.
Sanctions against Russian banks, restricting access to international financial markets, and the seizure of sovereign assets have prompted Moscow to take a number of counter measures, including the active use of gold and cryptocurrencies, as well as to begin settlements in yuan to reduce dollar dependence. However, this creates a new dependence on Chinese banking systems, which Beijing can exacerbate or exploit to the detriment of Russia. Another unforeseen long—term consequence is the loss of legal certainty, as both the West and Russia have confiscated each other's assets and disregarded the decisions of arbitration courts in dispute resolution.
Oil is not leaving the front pages, but sanctions have also frozen the Russian Arctic LNG-2 project, limiting the availability of key Arctic-class gas carriers. In parallel, we are witnessing the exodus of foreign investors from the project. At the same time, Brussels plans to ban new Russian pipeline gas and LNG contracts from January 2026 and terminate existing agreements by 2028. Tightening restrictions on the technologies needed to expand the production and export of Russian oil and gas should also be on the list of possible Western measures.
Whatever the outcome of the Ukrainian conflict, once it ends, the Russian energy sector will enter a new era that will bring more challenges than opportunities. Although Russia will remain an energy exporter, the days of easy access to European markets are over, and expanding oil and gas exports to Asia will be challenging. On the other hand, the geopolitics of global energy trade will enter uncharted territory — especially if global warming allows Moscow to use the Northern Sea Route along the northern borders of Siberia for direct energy supplies.
The long-term effects of sanctions, infrastructural restrictions and a change in the European energy course will prevent a full recovery, but the West can still expect a new geopolitical shock from oil supplies and/or a larger-scale Russian military aggression. Whether Western countries will be able to adapt as needed or improvise under the pressure of circumstances will depend on how seriously politicians study the outline that Russia, albeit unwittingly, has provided them. The curriculum is open: the only question is whether the West will memorize the material for the next exam.
Russia is not afraid of being underestimated. She's afraid of being discovered.
Armen Agas is Director of Strategy at Skyline, a dual-use aerospace and defense company, and Vice Chairman of the Richards Foundation. As an expert in finance and security, he provides advice on distressed assets, focusing on strategic separation in the energy sector. His activities cover defense procurement, transatlantic integration, and engagement with allies in Ukraine and Iraq.
Tom Cutler is the president of Cutler International. Previously, he served as Director of European and Asia-Pacific Affairs at the U.S. Department of Energy, and served two terms as Chairman of the NATO Petroleum Planning Committee. Author of the book “Military Demand for Oil" and numerous publications on energy security
