Status: 04/12/2022 12:44 p.m
After stopping coal imports, the EU countries are also considering an embargo on Russian oil imports. However, abandoning Russian oil is arguably more difficult than expected and could further drive up oil prices.
High oil and thus also petrol and diesel prices could be the result of an EU oil embargo against Russia. After phasing out coal imports from Russia, an oil freeze by the EU would be a next step to make it more difficult for Russia to finance the Ukraine war.
A gas embargo is not yet in sight, as Germany in particular is still too dependent on Russian gas. Federal Minister of Economics Robert Habeck (Greens) wants to fill up the German gas storage facilities as much as possible by the autumn.
Billions less for the war chest
An oil embargo would probably hit the Russian economy much harder than abandoning coal. According to calculations by the Bruegel think tank, the EU currently imports oil worth 450 million euros a day. This would fill the Russian war chest much more slowly.
The USA had already announced in early March that it would no longer accept oil deliveries from Russia to the USA. Great Britain wants to get by completely without Russian oil by the end of the year.
OPEC does not want to expand production significantly
Forgoing around 7.5 million barrels of oil per day from Russia is, however, difficult for the EU to manage in the short term. This is shown by the result of the first soundings by EU representatives with the oil cartel OPEC. OPEC Secretary General Mohammed Barkindo said at yesterday’s meeting that it was “nearly impossible to replace a loss of this magnitude.”
Commodity expert Giovanni Staunovo from the major Swiss bank UBS sees several factors on the part of OPEC that are responsible for this: “On the one hand, OPEC+ decides unanimously on measures such as expansion of production,” Staunovo said tagesschau.de. And Russia, as a member of the OPEC+ network, is also a partner of the alliance. On the other hand, expanding production is sometimes difficult: “Of course, Saudi Arabia could quickly increase its production significantly. Other OPEC+ members are already producing at the edge of their capacities and can hardly increase production further.”
“Oil market is more flexible than gas market”
For the EU countries, the USA and other producing countries outside the OPEC group remained an alternative. In order to increase exports in the short term, however, the USA would have to increase the production of oil from fracking wells. According to Eric Heymann, energy expert at Deutsche Bank Research, there are certainly alternative sources of supply for the EU countries. “With the current world market prices, the expansion of production in the USA, but also in other producing countries, is also possible in the short term,” says Heymann, “the oil market is significantly more liquid and flexible than, for example, the gas market”. Industry in the EU countries is also less dependent on oil supplies than is the case with gas.
However, if the European states were to refrain from using Russian oil with an embargo, a price increase would probably be inevitable. “The Russian oil that no longer flows into the EU cannot simply be diverted to other countries, there are no pipelines and transport capacities for this, and this oil would initially not be available on the world market.”
Embargo would lead to price increases
UBS expert Staunovo sees oil prices rising in the medium and long term. The release of US reserves could limit the price increase for a few months. “Should there be significant import restrictions for Russian oil by the EU, we think a price of 150 dollars a barrel for Brent is possible,” said Staunovo. In a “baseline scenario,” Deutsche Bank expert Heymann assumes an average price for Brent oil of $97 in the current year. However, should an embargo be imposed on Russian oil, he also expects “significantly higher prices”.
Whether there will ultimately be a tough embargo or a gradual reduction in the EU’s dependence on Russian oil is of course a political decision. The EU foreign policy representative Josep Borell did not want to commit himself after yesterday’s talks with OPEC: “Nothing is off the table, including sanctions against oil and gas.”