What You Can Do to Stop Putin

Horrifying images have been coming out of Ukraine since Russia invaded on February 24, 2022. Western countries have since imposed significant sanctions on Russia. While this has caused the Russian Rouble to fall, the currency drop has so far been smaller than previous currency slumps (see Figure 1)¹Source: The Economist..

Figure 1: Rouble in Russian Currency Crises

The reason is that the sanctions have exempted Russian energy exports, and energy prices are high right now. The average price of Brent crude oil was \$79.59 in the fourth quarter of 2021. Russia had a record trade surplus of \$67.6 billion this quarter, corresponding to \$741 million per day. This surplus was dominated by energy exports (see Figure 2).

The price of oil has since surged. The closing price on March 2, 2022 was \$112.93. Russia produces about 11 million barrels per day of oil per day. It exports 5 million barrels per day of unrefined petroleum and another 3 million barrels of refined petroleum products. If oil export levels are maintained, this oil price increase corresponds to approximately \$267 million per day in extra export revenue²$(\$112.93-\$79.52)\times8\ \textrm{million}=\$267\ \textrm{million}$. Russia’s exports for everything other than crude oil products amounted to \$384 million per day in the 4th quarter of 2021. This amount includes gas products which are also exempt from sanctions. While Russia has been having trouble selling its oil which has been trading at a discount, the high oil prices have softened the blow of sanctions³The trade statistics in this post are from Statista..

Figure 2: Energy Exports as Part of Russia’s Trade Balance

Western countries have been reluctant to extend sanctions to Russia’s energy exports. A morning consult poll taken just before the invasion found that 58% of Americans would hold Biden responsible if the conflict resulted in higher gasoline prices. Attitudes like this may explain the reluctance to restrict Russian energy exports.

Even if Western Governments are unwilling to restrict Russian oil sales, Western individuals still can. At this time, the most impactful thing that most Americans can do to reduce Russia’s capacity to wage war is to reduce their gasoline consumption.

Filling up your Gas Tank is a Big Gift to Putin

A small reduction in near term US oil consumption would have a surprisingly large impact on Russian oil revenues. Oil is a globally traded commodity. Even though only about 4% of US oil consumption is from Russia, the demand for oil in the US has a big impact on the price that Russia is able to sell its oil for globally.

In the short run, oil prices are inelastic, which means that small changes in oil supply or demand have a relatively large effect on price. This is because it is difficult in the short run for producers to change production levels or consumers to change their consumption. 

Since a small decrease in oil consumption would result in a large change in the oil price, and Russia exports a lot of oil, a small reduction in oil consumption results in a surprisingly large reduction in revenue for Russia.

This blog post attempts to estimate how much revenue Russia gets when you fill up your gas tank. 

The formula for price elasticity is as follows, where $e$ is the elasticity, $Q$ is the quantity and $P$ is the price.

$e=\frac{\%\Delta Q}{\%\Delta P}$

Sources vary as to estimates of the elasticity of oil demand, but for the purpose of this analysis it is assumed to be -0.1⁴Based on this paper. One barrel of crude oil is refined into 19 gallons of gasoline and 10 gallons of diesel⁵According to the Department of Energy.. For the purpose of this analysis it will be assumed that a typical gasoline tank is 15 gallons and corresponds to ½ a barrel of crude oil. Worldwide oil consumption is estimated to be 100 million barrels per day in 2022⁶According to the US Energy Information Administration..

$-0.1=\frac{\frac{-0.5\ \textrm{barrel}}{100\ \textrm{million barrels}}}{\frac{\Delta P}{\$112.93}}$

Rearranging, this becomes:

$\Delta P=\$112.93\cdot\frac{5\ \textrm{barrel}}{100\ \textrm{million barrels}}=\$0.0000056465$

Reducing the price of oil by a fraction of a penny might not seem like much until we consider that Russia produces 11 million barrels of oil a year. So this reduction in the oil price reduces Russian oil revenues by $\$$62.11.

$\$0.0000056465\times 11\ \textrm{million barrels}=\$62.11$

The price to fill a 15 gallon gas tank right now is only $\$$58, so when I initially did this analysis I was surprised that marginal financial benefit to Russia alone would be more than that. This is true for a similar reason that OPEC is able to earn more money by restricting oil production. The increase in oil price more than offsets the reduced sale quantity.

The elasticity that I used is only valid for the short term. Over longer time horizons producers and consumers will make adjustments that reduce the impact of a given loss of demand on the oil price. For example, in response to the lower prices oil producers may cut back on their investment and production. Consumers may buy less fuel efficient vehicles or select a longer commute. So if you make a change that reduces your gasoline consumption long term, the reduction in Russian oil revenue will be less than $\$$62.11 per tank of gas.

Reducing your long term gasoline consumption is still worth doing. Low oil prices in the 1980s and 90s were a major factor in the collapse of the Soviet Union. Additionally, there are environmental benefits to using less gas.

There are reports that Russia has been having trouble selling its oil despite the sanction exemptions. Shippers, banks and insurers are wary of doing business with Russia. Russia will likely have to discount its oil to sell what it produces. However, this analysis is still valid. The lower the price of the international benchmark Brent crude, the lower the sale price Russia will need to offer for its discounted crude oil.

So if you can walk, bike or take transit instead of drive for some trips while he war in Ukraine lasts, it is a concrete thing that ordinary Americans can do to deprive Russia of the resources it needs to continue the war. Other people are making much larger sacrifices right now.

I’ll end with this adaption of a World War II era propaganda poster: