Important day today. There are 17 ships in three Ukrainian ports cleared for grain shipments, of which 10 are ready to go, and it was just reported that the first one has set sail on its way to Turkey and then the rest of the world.

Whether all 22mn tonnes of grain that is reportedly in the silos will leave remains moot. And more is coming as the harvest starts. Ukraine could export up to 50mn tonnes this year.

I suspect not. As I have said, my working hypothesis is that Russian President Vladimir Putin will continue to squeeze the commodities he controls to keep their prices high and to use as leverage to get the West to ease more sanctions – a tactic that seems to be working quite well so far.

The FT is reporting this morning that some of the oil sanctions have been eased too and the oil price cap idea has proved to be so hard to do that it hasn’t even made it onto paper, let alone practice, despite the hype at the G7 meeting last month.

I think people are starting to wake up to the idea that the goal should not be to cut Russian revenue from oil to zero, but to bring the market price down to about $60 per barrel, as I argued in my fantasy forward-look at Russia in five year’s time, “Fourth Russia – the energy wars.”

When the war started, the knee-jerk reaction by the West was to look at what Russia sold to us and attack it. Oil was the obvious target and in theory that would massively damage the Russian budget. If we had cut oil (and gas) off in the first week it might have worked, as Russia came very close to a financial crisis, but in the meantime, thanks to the leakage via India, China and others, this policy has massively backfired, and Russia is actually earning more money than it has done ever before.

The leakage, since the rest of the world is not on board with sanctions, makes it impossible to stop oil exports, and only drives the price up, which compensates for the sanctions. However, the technological sanctions are almost completely effective, and the Russian economy has been badly wounded. I post a feature by our Russia correspondent Theo Normanton on the collapse of the car sector and we are planning a series of these as we work our way through the sectors. Turbines are up next.

So if the West can cool tensions and get the global economy more or less back to normal then oil prices will go down and the Russian budget will be in serious trouble. The Russian budget breakeven price of around $42 per barrel has almost certainly gone up and there is the $15 discount Russia’s Ural blend gives away to Brent. So Russia Inc. will probably start making a loss with oil at around $60 – where the price was before the pandemic sent everything up.

One of the difficulties here is that the Kingdom of Saudi Arabia (KSA) refused US President Joe Biden’s request to increase output, but with the US production and a looming global recession, it seems to me it will be possible to lower the price to $60. And given the West says it is now easing restrictions on Russian oil exports, it looks like the West is going to try this next.

Another problem is that Putin will work hard to make trouble, which he can still do very effectively. But not forever. So it's not clear to me how this story will play out nor how long it will take a “return to normal” strategy to hurt Russia. Probably several years, but possibly the Russian economy will start to get into trouble as soon as the end of this year.

In the meantime, the race is on for Russia to find even more markets to leak its commodities to. I put up our cover piece for this month’s magazine that looks at Russian Foreign Minister Sergei Lavrov’s Africa tour last week. He had a warm welcome, and Putin intends to replace Europe with this market (as well as Asia and Latin America, of course), but Africa will play a key role as it is so close, and already buys a lot of Russian products. Thanks to the Cold War and colonialism, it is well disposed to Moscow. bne IntelliNews has launched an African service as we think that this story will only get more important as time passes (take a two-week trial here).

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