The European Union is considering "smart" sanctions against Russia's oil industry in a bid to minimize the fallout for itself while maximizing pressure on Moscow, The Times reported, citing European Commission executive vice president Valdis Dombrovskis.
The European Union has been discussing some form of an oil embargo against Russia for weeks now but has so far failed to come up with a version that would satisfy the heavily reliant importers, among them Germany, Europe's largest economy.
"We are working on a sixth sanctions package and one of the issues we are considering is some form of an oil embargo. When we are imposing sanctions, we need to do so in a way that maximises pressure on Russia while minimising collateral damage on ourselves," Dombrovskis told The Times, suggesting that an agreement remained elusive and was likely to remain so in the observable future.
The Ukrainian government has been pressuring the EU into an oil embargo, saying that buying Russian oil—and gas—funds the war. However, while some countries have already signed up for an oil embargo, including Poland and Lithuania, others, such as Germany and Hungary, have opposed it.
According to Dombrovskis, the punitive action on Russia's oil industry could include a gradual phase-out of imports or the imposition of tariffs. However, both of these would lead to higher oil prices, casting a shadow over the EU's intention of minimizing the damage.
Russia is the biggest oil supplier to the European Union, accounting for more than a quarter of total imports, Reuters noted in a report on the news. Oil, as a whole, accounts for a third of the EU's gross available energy, the report also said.
Gazprom is supplying nat gas to Europe via Ukraine, in line with what European consumers are asking for. Requests for Gazprom's gas to Europe were up on Sunday, to 51.7 million cubic meters, from 48.6 million cubic meters on April 23.
Overall, self-sanctioning from European oil buyers has already led to a shrinkage in Russian oil exports to the EU, which has been one of the factors fueling the rise in international oil and fuel prices.
By Irina Slav for Oilprice.com
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Consumed by their enmity towards Russia and doing Ukraine's bidding, the big brains in the EU don’t seem to get it into their heads that first there is a very heavy price to pay for imposing an embargo on Russian oil supplies, second there is no replacement now or for the foreseeable future for Russian oil and products supplies estimated at 4.2-5.6 million barrels a day (mbd) or 30%-40% of the EU’s needs and third any such embargo could be vetoed by Germany and other EU members who are dependent on Russian oil supplies.
There is not one single oil producer in the world or a group of producers including OPEC+ and US shale oil that can replace 8.0 mbd of Russian oil and products exports or even half of that now or in the next 20 years. OPEC+ has a very small spare production capacity and shale oil is a spent force.
Moreover, Russia could be able to sell the bulk of its banned EU exports in the Asia-Pacific region particularly in China and India and even to Western oil traders.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London