In the short term, the impact on Europeans will depend on the ability to find suitable substitutes in quantity and quality (e.g. via Indian refineries), the level of world prices partly at stake, on the health front (depending on impacts from Covid to Chinese demand and elsewhere in Asia), but also in the possible return to the stage of the sanctioned producing countries (Venezuela and Iran). (Image credit: Adobe Stock – )
After coal, an embargo on Russian oil imports is being discussed as part of the EU’s 6th “sanctions package”, with the prospect of ending imports of crude oil and then refined products by the end of 2022, according to Patrice Geoffron , between coal and oil are the problems not of the same magnitude.
In 2021, the value of imports of petroleum products was fifteen times higher than that of coal (according to Eurostat). And since oil is more complicated to transport than coal, each new embargo project is anchored in specific industrial and historical realities.
Russian oil is transported in part by pipelines routed back to Soviet times, a network that keeps certain Moscow “ex-satellites” (Czech Republic, Slovakia and Hungary) in extreme dependency, which are very landlocked and fed by fairly cheap Russian oil will. This has prompted these countries to request additional time for implementation, and Hungary in particular to request substantial compensation funding (around €15 billion) to adapt its import and refining infrastructures. Obviously, it is difficult to rule out ulterior motives related to the proximity of Viktor Orban and Vladimir Putin, since the former had announced from the start of the conflict that an embargo on hydrocarbons would constitute a “red line”.
The “critical” dependency is not limited to these three Member States. The German refinery at Schwedt (near the Polish border), also a holdover from the Eastern bloc, determines the fuel supply of Berlin and Brandenburg and is under the capital control of the Russian company Rosneft, which supplies it. France, although remote in the westernmost part of Europe, cannot entirely escape this dependency, particularly by importing diesel from Russian refineries.
The imperative nature of the European Green Deal
Despite these restrictions, import flows of Russian crude oil and petroleum products have started, amid the imposition of an embargo due to perceived legal risks and the obligation of major European corporations to scale back operations with Russia. Admittedly, some of these flows find buyers elsewhere, as is currently not the case in India, but in exchange for a large discount (about 1/3 compared to world market prices).
As agreed by Vagit Alekperov (who was forced to resign as CEO of Lukoil, Russia’s leading oil company), a ban on oil imports would force Russia to freeze production from some of its wells, as it is not possible to divert all volumes to Europe in the short term intended for other markets. In addition, the oligarch underscores the difficulties in financing the billions of investments needed to redirect the flow of Russian oil to other markets, the years it will take, and announces permanent damage to the Russian economy.
In the short term, the impact on Europeans will depend on the ability to find suitable substitutes in quantity and quality (e.g. via Indian refineries), the level of world prices partly at stake, on the health front (depending on impacts from Covid to Chinese demand and elsewhere in Asia), but also in the possible return to the stage of the sanctioned producing countries (Venezuela and Iran). So many uncertainties that will reinforce the imperative nature of the European Green Deal and the need to plan transition efforts in France.
This is while taking into account that the amount of Russian oil and gas that will continue to enter the EU depends as much on the Europeans’ determination to impose embargoes as on Russia’s will to keep its exports going. Risk of breakage, which Poland, Bulgaria and Finland have already experienced.