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May 7, 2022
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Oil embargo: EU shoots itself in the foot

Oil embargo: EU shoots itself in the foot

Photo: dpa/pick-alliance/TASS

The British edition of the Daily Express acknowledged that the EU itself will be the only one affected by the impending embargo on Russian energy supplies, since Asian markets are still open to Moscow.

“Brussels is counting on a ban on all Russian oil from Europe to deal a devastating blow to the Russian economy, given that in 2021 the Kremlin received a staggering €48.5 billion from crude oil and €22.5 billion from petroleum products. But Russia is still profiting from partners in the East, and it could grow even more with a planned network of oil and gas pipelines linking it to Asia.

In the article, the author mentioned the existing and future Russian gas pipelines to China and East Asia, the sale of oil to India, Japan and South Korea, as well as the export of liquefied natural gas to Pakistan, noting that these contracts will help Russia soften the economic blow caused by a sharp decline in business ties. with Europe.

The FT edition, citing Western analysts, also wrote that the planned EU sanctions against Russian energy resources will not have the desired effect, Russia will withstand the consequences of the restrictions. This is due to rising fuel prices, which could “neutralize the cost of losing the European market.” In addition, Russia may start supplying more energy resources to Asian countries.

According to Bloomberg, both state and private refineries in India have bought more than 40 million barrels of Russian oil since the start of the special operation in Ukraine. This is 20% more than deliveries from Russia to India for the whole of 2021. Despite the fact that, according to the agency, they want to receive Russian raw materials at a discount of up to 20% for sanctions risks, Russia’s oil revenues from oil exports in April 2022 may significantly exceed the figures for the same period in previous years, as Foreign Policy writes. (FP).

An analyst at Kpler, an oil supply tracking company, noted that oil exports from Russia rose from 3.3 million barrels per day in March to 3.6 million barrels per day in April, despite sanctions.

As for the European Union, we recall that the European Commission, within the framework of the sixth package of sanctions against Russia, proposes a phased ban on all imports of Russian oil to the EU. According to the head of the EC Ursula von der LeyenThe waiver will be gradual, by the end of this year.

According to media reports, on May 4, the permanent representatives of the EU countries failed to agree on an embargo, but they plan to complete work on the sixth package no later than May 9. The Czech Republic, Slovakia and Hungary spoke out against a complete embargo. The first two countries want a three-year transition period for themselves, while Hungary wants exceptions for oil supplies from Russia via pipelines. The Austrian authorities also spoke about the problems with the refusal of oil. However, on May 2, the ZDF channel reported that the right to veto the EU embargo on Russian oil was allegedly withdrawn by Austria, Hungary and Slovakia.

On the other hand, on May 4, the Minister of Energy of Slovakia Karol Galek declared that the embargo on Russian oil would lead to the destruction of the European economy. According to him, such a measure will hit not only Slovakia itself, but also Austria, the Czech Republic and even Ukraine.

Head of the Ministry of Economy of Germany Robert Habeck acknowledged that Germany could face a shortage of gasoline in the east of the country due to the embargo on Russian oil, but the German government is “working to ensure that this does not happen.” The minister explained the threat of shortages by the fact that the eastern part of Germany is supplied with fuel from the refinery in Schwedt. This enterprise processes only Russian oil. Despite this, Berlin is ready to consider a complete embargo.

President of the Foundation “Osnovanie”, energy expert Alexei Anpilogov believes that the EU countries, which are most dependent on Russian oil, will do everything to delay the embargo and minimize its consequences. In the most severe version of the ban, the victims will indeed be the European Union, which will have to overpay for an alternative to Russian oil, and it is not yet certain that even in this way it will be possible to find the necessary volumes, which amount to several million barrels per day.

– The European Union is trying its best to portray political unity, but when it comes to who will pay the bills and whose interests will be affected, it turns out that this unity is present only in program documents, but it does not exist on the ground. Bulgaria, Slovakia, Hungary and the Czech Republic have already made statements that refusing to import Russian oil would mean the virtual destruction of the economies of these countries. Their oil refining is adjusted to Russian grades, other options are either more expensive or do not exist at all. Therefore, these countries are asking for a very long transition period.

If the EU in its documents talks about a six-month lag before the ban, these “dissident countries” have been asking for 20 months or even more, which neutralizes all the harsh statements that the EU is now introducing a new package of sanctions.

“SP”: – But if the ban is nevertheless introduced, what will be the consequences for all parties?

Let’s say these two years have passed, and the countries of the European Union have basically stopped buying Russian oil. First, you need to figure out how honest these statements are that Russian oil will not enter the EU at all.

We already see that a number of countries have resorted to a trick that will allow them to circumvent these sanctions. They started buying Middle Eastern and Norwegian oil and mixing it with Russian. In the mixture, it is possible to achieve that 51% is the “correct” oil, and 49% is Russian, and such raw materials are already beginning to be called “blended” and are no longer considered sanctioned. And if this operation is done a few more times, it is possible to achieve that the share of Russian components is 60–70%, but at the same time, formally, it will be mixed.

Another point that will definitely be used is “gray” supplies. Through various intermediaries, Russian oil will be resold, certificates of origin will be changed, and it will be passed off as Middle Eastern, American or Norwegian oil.

But let’s imagine the most severe version of the embargo. Let’s say the European Union refuses to play with mixtures, replacement of certificates and bypass schemes, and completely switches to alternative oil. Then the question arises: “Is there such oil on the market at all and is it possible to deliver it to Europe”? No, it is impossible, as stated, in particular, by the Organization of Petroleum Exporting Countries – OPEC. Such additional volumes simply do not exist on the market, and they cannot simply materialize so quickly. The only option is to reorient supplies.

“SP”: – But it will be a noticeable blow for Russian exports, too?

– In the most difficult situation, Russia will have to reorient oil supplies to other countries. By entering the markets of these countries, for example, China or India, the Russian Federation will create price pressure, as additional volumes will appear there. Then traditional oil suppliers will go to Europe for a possible price premium associated with the fact that the EU will agree to buy any oil for any money, as long as it is not Russian.

Who will lose from this? It is clear that Europe. It is already known that Russia, even giving discounts on oil, earns more than before the crisis, because the price of energy resources has jumped. Today, Brent is worth $112 per barrel, up from $80 a few months earlier. Even with a 20% discount, Russia earns more. Europe is already losing these 20-25%.

In the future, the situation will be even more paradoxical. Russia, most likely, will earn the same or a little more in other markets, and the European Union will overpay for oil by 30-40% of pre-crisis prices. I think that the direct European premium for “black gold” will be at least 10-15%.

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