Russia pumps almost as much oil into the global market as it did before its invasion of Ukraine. With oil prices up, Moscow is also making more money.
Demand from some of the world's largest economies has given Russian President Vladimir Putin the upper hand in the energy battle that shadows the war in Ukraine, and has confounded the West's bid to cripple Russia's economy with sanctions.
Sales are booming in Russia's export market, the world's largest in crude and refined fuels. And new trade arrangements have given Mr. Putin cover to use natural-gas exports as an economic weapon against Ukraine's European allies.
Before the war, Russia supplied Europe with 40% of its gas. It has since throttled flows through the Nord Stream pipeline to Germany and other conduits, driving prices higher and putting pressure on European households and businesses.
Oil revenue more than makes up the difference.
"Russia is swimming in cash," said Elina Ribakova, deputy chief economist at the Institute of International Finance.
Moscow earned $97 billion from oil and gas sales through July this year, about $74 billion of that from oil, she said.
The country exported 7.4 million barrels of crude and products such as diesel and gasoline each day in July, according to the International Energy Agency, down only about 600,000 barrels a day since the start of the year.
Even with the dip in oil exports, Russia has earned $20 billion in average monthly sales this year compared with a $14.6 billion monthly average in 2021, when economies were recovering from the pandemic crash. Shipments were rising again in August, data from ship-tracking firm Vortexa show.
Russia's oil-market resilience has drawn a mixed reaction in Washington, which is juggling two conflicting goals: Tamping down inflation with increased global oil supplies, and keeping economic pressure on Mr. Putin.
Oil prices, which spiked past $130 a barrel in the first weeks of the war, have settled around $100 in recent weeks. While still higher than a year ago, the retreat has brought down gas-station prices in the U.S. and Europe.
Russian energy sales have flourished by finding new buyers, new means of payment, new traders and new ways of financing exports, according to oil traders, former Russian industry executives and shipping officials.
"There came a realization that the world needs oil, and nobody's brave enough to embargo 7.5 million barrels a day of Russian oil and oil products," said Sergey Vakulenko, an analyst and former Russian energy executive.
After buyers in the U.S., the European Union and their Pacific allies cut back their Russian oil imports, much of it went to nations in Asia that have declined to take sides in the conflict.
An unexpected market has been the Middle East. Exports of Russian fuel oil, a lightly refined version of crude, now go to Saudi Arabia and the United Arab Emirates, often stopping in Egypt en route.
The Russian oil is either burned in Saudi power stations or exported from Fujairah, a U.A.E. port and hot spot for blending Russian and Iranian oils to conceal their provenance. This is oil that before the war was shipped to U.S. refiners.
The Russian imports, purchased at a discount, free state giant Saudi Arabian Oil Co. to export its crude at market prices.
"The Saudis are happy to take their oil and sell it rather than burning it," said Carole Nakhle, chief executive at consulting firm Crystol Energy.
The arrangement adds supply to the global oil market, helping put a lid on prices. "This is a win-win situation for the Russians and even, I would say, for the Europeans and the U.S.," Ms. Nakhle said.
It also strengthens Russian ties with the Middle East, where Mr. Putin is capitalizing on friction between the Saudis and the Biden administration.
Riyadh, joined with Moscow in a cartel known as OPEC+, has resisted U.S. pressure to pump more crude. That has propped up prices, helping Russia during the months when its oil traded at a significant discount.
Saudi Energy Minister Prince Abdulaziz bin Salman said last week OPEC could cut oil production, rebuffing U.S. pressure to open the spigots and instead sticking by Moscow.
Loose labeling
In most cases, Russian oil is legal to buy and sell. The U.S. and EU designed sanctions on the financial system that allow payments for oil to flow to non-sanctioning countries, as well as keep energy prices from rising further.
Many Western institutions, including banks and commodity trading houses, went beyond what was required by law and said they would cut back or stop any transactions that touched Russian oil. That left smaller traders to facilitate Russian exports when such firms as Glencore PLC and Gunvor wound down their handling of oil produced by Russia's state-backed Rosneft Oil Co.
These smaller players moved personnel to Dubai and Singapore to skirt short-lived EU sanctions on dealing with Rosneft, said traders and industry executives.
To help obscure its oil-trade workarounds, Moscow ended monthly updates on oil production and other data, making it difficult to gauge activity. Often, Russian port documentation no longer details where the country's oil is heading and who is shipping it, according to traders.
Middlemen move Russian oil from one ship to another while at sea, an expensive maneuver that both disguises its origin and fills vessels too large to reach Russian ports on the Baltic Sea.
Traders say it is likely done to ensure that financial institutions, mindful of sanctions and damage to their reputations, don't withdraw funding and insurance for the shipments.
Iranian, Venezuelan and now Russian fuel oil is stored in the trading hub of Fujairah and intentionally disguised, according to oil traders.
One trader in Switzerland said he was offered fuel oil that, based on characteristics such as its sulfur content, was clearly Russian. The label said otherwise.
The rewiring of the oil market stabilized the Russian energy industry after the fear of sanctions struck early in the war.
Western buyers and European lenders that bankroll commodity markets froze out Russia. Earlier this year, traders predicted daily Russian exports would fall by as many as 3 million barrels.
China, Turkey and Middle East nations quickly stepped up their purchases, taking advantage of discounted prices and opening lucrative new trade routes for Russian crude. Some refine Russian oil and make profits exporting it to the West as gasoline and diesel.
India is now Russia's best customer. Companies there, under government orders, went from near-zero Russian oil imports to almost a million barrels a day within weeks of the Ukraine invasion.
Imports have ebbed recently because of refinery maintenance work, said an executive at state-owned Indian Oil Corp., but the company signed a contract with Rosneft to lock in supplies until 2028.
"Russian oil will find its new way into India, China and other markets," said Evgeny Gribov, who in March resigned as an executive at Lukoil PJSC, Russia's second-biggest oil producer. "And even sold at a discount it is more than enough to continue fueling the war."
Shadow war
In the long run, Russia will struggle to remain a top-tier oil supplier, said analysts and current and former energy executives. There are physical limits on how much Russian crude that refiners in India and China can take. And, as Russian machinery ages and access to Western software is lost, sanctions that ban technology imports cloud future energy prospects.
Winter will test the resolve of Moscow and its adversaries.
On Dec. 5, the EU is due to phase in an embargo on Russian oil and a potentially punishing ban on insuring and financing Russian oil cargoes. If enforced, which some traders and analysts doubt, the measures would significantly escalate efforts to handicap Russia's economy.
The U.S. and its allies have largely spared such restrictions to avoid driving energy prices higher.
Arkady Gevorkyan, an analyst at Citigroup, said Russia might struggle to find new buyers for about 1.25 million barrels of the crude and fuel exports that currently head to Europe each day. Livia Gallarati of Energy Aspects said Russia's daily output of crude and a related fuel known as condensate could drop some 2 million barrels by March next year.
Washington is trying to coax Brussels into restrictions that would limit Russian oil revenue without driving up prices.
The U.S. wants the EU to bar insuring cargoes only if they don't comply with a per-barrel price cap. The aim is to shrink Mr. Putin's war chest while keeping prices from new highs.
"We don't want Big Macs being sold in Moscow," a senior Treasury official said. "We want cheap oil flowing through the Baltic."
Some traders and analysts are skeptical and there has been little progress since Treasury proposed the price-cap idea in June.
Proceeding with the EU's proposed restrictions would reveal the continent's willingness to absorb economic pain on behalf of Ukraine. Many believe Moscow would respond by cutting Europe's natural-gas supply, which of late has flowed at around 20% of capacity on the Nord Stream pipeline, to zero.
"Vladimir Putin has put mutually assured destruction on the table," said Helima Croft, head of commodity strategy at RBC Capital Markets.
