As profitable as 2022 was for Russia, 2023 is going to be so financially problematic for it, writes DiXi Group president Olena Pavlenko in the column Depriving Russia of money for war: How EU should strengthen energy sanctions (Ukr).

The author claims Russia applied the same rule to all countries that purchased its oil and gas last year - the more the volume of supply is reduced, the higher the prices will be.

It allowed Russia, says Olena Pavlenko, to receive record profits while reducing gas supplies to the EU. Russia received twice as much money by supplying 100.9 billion cubic meters of gas to the EU in 2022 (compared to 185.1 in 2021).

"But in 2023, the trend may be the opposite," the expert believes.

When the EU countries showed they were able to get through the winter and replace Russian gas, prices began to fall, writes the president of DiXi Group. The gas price has already fallen to 600 euros per thousand cubic meters, while it reached 2,000 euros per thousand cubic meters before.

According to Olena Pavlenko, we see a similar trend with oil. When Russia tried to apply its "minus volume, plus price" formula to the oil market, it didn't work.

As a result, the Russian government has recently announced that it will cut oil production by 500,000 barrels per day from March onwards. The market hardly reacted to this statement.

"The first message: the Russian formula "minus volume, plus price" no longer works," Olena Pavlenko added.

Even if it does have an effect, it will be much weaker this year than in 2021-2022. It means that the EU and the G7 can continue reducing the price cap on Russian oil without fear of last year's shock.

After the price cap came into force, the sanctions' results became clearly visible.

In January 2023, the Russian budget deficit amounted to $25 billion, almost 60% of the annual budget deficit. Tax revenues from selling oil and gas fell by 46% compared to the same period in 2022. Expenses also increased significantly - by almost 60%. Russia is financing the war, and this requires a lot of money.

Russia formed this budget when the oil price was $70. Instead, it traded in January at around $50. If we consider the first month and low oil prices, then add the sanctions on oil products, it is evident that Russia will end 2023 with a huge hole exceeding official forecasts. Experts say the deficit is up to $70-80 billion.

"The National Welfare Fund will probably be used to plug budget holes.

But this is only the beginning of sanctions pressure," warns the president of DiXi Group.

Introducing price restrictions on petroleum products from February 2023 will have an additional effect and make the Russian budget even smaller.

However, despite the decline in oil and pipeline gas revenues, Russia is doing quite well in the nuclear energy and LNG supply sector.

"Therefore, we expect that soon both the LNG and the nuclear sector will also fall under EU sanctions," says Olena Pavlenko.