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Members of the European Union are expected to agree on an embargo of Russian crude oil imports as early as next week, according to officials, in a move that would lay to rest a point of contention among its members.
Such a measure has been discussed for weeks—with the United States adding pressure on the group to do its part to stop funding Russia with its payments for oil and gas supplies.
The EU will continue to discuss the matter over the weekend, according to the New York Times, with the European Commission set to draft the finalized proposal to submit it to EU ambassadors for approval. Those ambassadors are scheduled to meet on Wednesday of next week, with final approval set to be delivered by the end of the week, anonymous EU officials told the New York Times.
There is no indication of how inclusive or complete an embargo would be, but it’s clear that some type of embargo is on the horizon.
The EU gets a quarter of its crude oil from Russia. Analysts have suggested that if the EU instituted a full ban on crude oil, it would result in a significant financial hit and that Russia may be unable to find enough willing buyers to take the oil that normally heads to the EU. Such a financial hit could hamper Russian President Vladimir Putin’s ability to continue to fund the war in Ukraine.
There are longer-term implications as well. If Russia fails to find an outlet for all of its crude oil in the wake of an EU crude oil embargo, Russia could be forced to slash production—production that may be unable to come back online.
By Julianne Geiger for Oilprice.com
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Julianne Geiger is a veteran editor, writer and researcher for Oilprice.com, and a member of the Creative Professionals Networking Group.
Is the higher cost of oil imports to the EU worth any financial pain inflicted on Russia?
And oil isn't even the biggest EU issue, that is natural gas. There is no way the EU can replace Russian gas supplies for at least 2 years, if not longer.
The EU imports an estimated at 4.2-5.6 million barrels a day (mbd) or 30%-40% of its oil needs from Russia. If a full oil embargo is imposed on Russia, Brent crude would head towards $140-$150 a barrel since there will be no replacement for Russia oil in the current tight oil market. This could inflict huge damages on the EU economy probably plunging it into zero growth this year.
Even the United States’ economy won’t escape the consequences. The United States is the world’s second largest importer of crude after China importing currently an estimated 9.0 mbd. It is therefore, the most vulnerable among the major economies to oil price shocks. Moreover, steeply rising prices of oil and gas will send US inflation beyond 10% causing a further tightening the US economy and reducing its growth this year and the next.
There is not one single oil producer in the world or a group of producers including OPEC+, North Sea and US shale oil that can replace 8.0 mbd of Russian exports of oil and products or even half of that now or in the foreseeable future. OPEC+ has a very small spare production capacity, shale oil is a spent force and the North Sea has been in a state of decline for the last 20 years.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London