European countries are advancing towards a possible announcement later this week of a comprehensive embargo on Russian crude oil, in what may be the most severe economic sanction against Moscow since the start of the war in Ukraine.
The European race to replace the Union’s energy sources is redrawing global supply routes built over decades, and could prevent Russia from a very significant share of its revenues. A declaration of interest in Brussels is expected on Wednesday this week, and in recent days discussions have been taking place on the timetable and exceptions needed to reach a unanimous decision among the 27 member states of the Union.
Until Russia’s invasion of Ukraine, the EU was the largest customer of Russian crude oil, with imports of 138 tonnes in the past year. This amount accounts for more than half of Russia’s total crude oil exports (260 million tons), which together with Russian gas and coal exports account for 43% of the country’s revenues. The EU has received about a quarter of its crude oil consumption from Russia.
20 billion d since the beginning of the war
Even now, despite the raging war, EU countries (led by Germany, Italy and the Netherlands) are buying Russian oil worth $ 400 million daily, due to high energy prices, according to calculations by the European Independent Research Institute “Brueghel”. This purchase brought to Moscow close to $ 20 billion in revenues from oil alone in the last months of the war, and another $ 20 billion in revenues from gas exports.
But now, despite previous reservations warning that an effective embargo would “take years to implement” or irreversibly hurt the continent’s major economies, Brussels appears determined to find a way to get rid of Russian crude oil “in the coming months,” according to diplomats at the organization.
What changed the picture was Germany’s position. Berlin is under immense public pressure to try and stop the “shameful dependence” on Russian energy. At the forefront of the effort is Economy Minister Robert Habakkuk, and the entire “Greens” party, which has turned almost overnight from a party that put climate change at the top of its agenda to a party that puts aid to Ukraine at the center of its activities. The party and its seniors have in fact led the change in German policy on the issue, from financial aid through the freezing of cooperation with Russia in the field of energy to the supply of military weapons, abandoning decades of pacifist positions.
While Germany’s natural gas sector is almost entirely dependent on Russian supplies, due to infrastructure and pipeline issues, it has a larger margin in terms of crude oil. So far, Germany has officially said that reducing crude oil imports from Russia will take a long time, but in recent days the tone has changed, and now Berlin is talking about “a few months” until the move is made. German Foreign Minister Annelna Barbock, also from the Greens, said this week that Germany now officially supports an oil embargo on Russia.
The Minister of Economy Dust has managed to sign a comprehensive agreement with neighboring Poland for the use of its port infrastructure, which is very close to the German border, in favor of importing crude oil in huge quantities already in the coming months. At the same time, on a quick tour of the Middle East and the Persian Gulf, the dust apparently signed agreements for the supply of crude oil. Germany’s new suppliers are also expected to include the United States, Canada and Norway, and possibly Iran as well – if the nuclear talks between the West and Tehran mature into an agreement that will allow exports.
Hungary, Italy and Austria oppose
Overall, the Dust reported last week, the government has already managed to reduce the rate of Russian crude oil that will reach the country in the coming months from 35% of total consumption as it has been so far to 12%, a decrease of about two-thirds in consumption. An adviser to the German government told the country’s media that Germany needed “only a few months” to put an end to Russian crude oil imports, while before that the government estimated that it would be needed by at least the end of the year.
The change in German stance has had an impact on the entire EU, which is now seriously considering adopting the move. However, there are some countries in the union that still oppose the move. These include Austria, Italy, Hungary and Slovakia, which will likely be required to extend the embargo over a longer period of time, or with significant exceptions. The last two countries have also announced that they intend to comply with Moscow’s demand to pay in rubles for natural gas. Due to lack of access to the sea and due to existing infrastructure, they are more critically dependent on oil supplies from Russia.
Hungarian Prime Minister Victor Urban has said in recent days that he “will not succumb to European pressure” to impose sanctions on Russian gas or crude oil, “because it would kill the Hungarian economy”. The country’s foreign minister explained that “the country has no other supply routes” and that Hungary “has already done everything in its power to diversify its energy sources”, but will have to continue to purchase Russian gas (85% of its gas consumption) and crude oil (65% of its oil consumption) . Hungary can veto a European oil embargo because EU decisions require unanimity, but mechanisms may be found to exclude it and other countries from the consequences of the move.
Significant implications for fuel prices
In addition to the long-term consequences, the European move is expected to have immediate consequences on the ground. The German town of Schwedt, for example, is now the endpoint of a gas pipeline carrying crude oil directly from Russia. The distilleries, which belong to the Russian company Rosenft, employ about 3,000 people. If the flow of oil in the pipeline is stopped as Germany wants, and the refinery moves to other places close to the ports where the crude oil is expected to arrive in the future, thousands are likely to lose their jobs. This is why Germany will probably carry out lightning work at the port of Rostock, and use existing oil pipelines to pump crude oil that will reach them in tankers.
In addition, the European embargo and the timetable in which it will be implemented are expected to have significant implications for the price of fuel. OPEC, which is controlled by Saudi Arabia and operates in coordination with Russia, has said in the past that it will not increase crude oil production.
The Brueghel Research Institute said that in an extreme case, European countries should return this year to the model of approving vehicular traffic only intermittently (according to license plate numbers and weekdays), as was the case during the energy crisis of the 1970s. Analysts have indicated that the European move will “redraw” supply routes, with Russian oil likely to reach Asia instead of Middle Eastern oil. The willingness of countries like India or China to attack Russian oil, which is already being offered at a discount of tens of percent, in the face of a possible Western backlash, is an open question that will affect the Russian economy and oil prices.
“As long as Russia finds a target for its oil barrels, then it will continue to be in business,” an analyst at investment firm Rystad told the Financial Times. .