The European Union has started drafting its proposal for an embargo on Russian oil imports as its latest response to the war in Ukraine, the New York Times reported, citing Brussels officials and diplomats.
The embargo will most likely be introduced in a gradual way, similar to the planned Russian coal embargo, to kick in this August, to give importers time to find alternative suppliers, the report noted.
Ukraine government officials have repeatedly called for a full EU embargo on Russian energy supplies. EU members have discussed direct energy sanctions despite the fact that even indirect sanctions targeting Russia’s financial sector have contributed to higher energy prices in Europe.
Some EU members, notably Hungary, have opposed an energy embargo, arguing that the impact on their economies would be devastating. This is perhaps the reason why Brussels is discussing a phased approach. As for alternative suppliers, OPEC has already said it would not be able to fill the gap left by embargoed Russian supply.
A week ago, the European Parliament joined the pressure campaign, calling for a full ban on Russian oil, coal, natural gas, and nuclear fuel in response to allegations about atrocities committed during what Russia calls a special military operation in Ukraine.
According to the NYT’s sources, the oil embargo will only be discussed after the second round of presidential elections in France in order to avoid adversely affecting incumbent Emmanuel Macron’s chances of a second term.
“The commission and E.U. members have smartly shied away from defining red lines that would trigger a sanctions response since Russia attacked Ukraine,” Eurasia Group director Emre Peker told the NYT.
“I expect the E.U. will shy away from defining triggers, as continued escalation by Russia in eastern Ukraine and revelations from Bucha and elsewhere continue to drive momentum behind a hardening European stance. Any other major catastrophes that unfold will just add more impetus to the E.U. response,” he added.
By Irina Slav for Oilprice.com
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Incited by the United States and its puppets inside the EU, namely Poland and the Baltic States, the EU is about to commit another hasty and more costly mistake than the first one by imposing an embargo on Russian oil imports to kick in August to give importers time to find alternative suppliers.
Such a decision will be prove very costly for the EU because there are no alternatives to Russian crude oil exports in the current tight market and second because it will end up paying sky-high crude prices that will plunge its economy deeper in crisis and reduce its economic growth to almost zero. As for alternative suppliers, OPEC has already said it would not be able to fill the gap left by embargoed Russian supply. Moreover, US shale oil production is already a spent force.
As expected, the real winner will be Russia who will be raking in money because of skyrocketing crude oil and energy prices. Moreover, Russian oil exports won’t be affected since a big chunk of Russian oil and gas exports continues to go to China. Another sizeable chunk is going to India and a few other countries and the remainder is being bought overtly and covertly by Asian and Western oil and gas traders. And even, if Russia sells smaller volumes of oil and gas, its revenue isn’t affected because of rising oil and gas prices. In fact, Russia’s budget surplus is getting bigger and bigger.
Energy is President Putin’s most formidable weapon. By mulling an embargo on Russia’s crude oil exports, the EU would be enabling President Putin to use the energy weapon in a most devastative way against both the EU and the United States.
The US is the world’s second largest oil importer after China importing 9.0 million barrels a day (mbd). It is, therefore, the most vulnerable to oil price shocks among the major economies of the world.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London