EU ahead of embargo on Russian oil: will consumers soon have to dig deeper into their pockets?

Created: 05/02/2022 13:06

By: Markus Hofstetter

For a long time, the federal government was against EU imports for Russian oil.

Now the wind has turned and an embargo is being prepared in Brussels.

What are the consequences for Germany?

Munich - It is another U-turn by Germany in the course of the Ukraine conflict.

After the German government, after long hesitation, agreed to the delivery of heavy weapons to Ukraine, it also supported a European oil import ban against Russia after initial reluctance.

Federal Foreign Minister Annalena Baerbock (Greens) has confirmed that Germany supports an oil embargo against Russia.

One is now "prepared" to manage without Russian oil for several years, said the Green politician on ARD.

The background are new supply contracts.

A few weeks ago, an immediate delivery stop would not have been possible, Baerbock continues.

Your statement is supported by the "Second Progress Report on Energy Security".

This shows that since the start of the Ukraine war, the share of Russian oil in German oil consumption has fallen from 35 to 12 percent.

EU sanctions against Russia: When could the oil embargo be decided?

The European ban on imports of Russian oil thus seems to be well on the way.

As reported by diplomatic circles on Sunday, the EU Commission is currently preparing another package of sanctions, the sixth in the meantime, against Russia.

It probably also includes an import ban on Russian oil.

The new text of the sanctions could be presented to the member states on Wednesday.

However, the decision on an oil embargo is not entirely in the towel.

According to Federal Economics Minister Robert Habeck (Greens), there is still no agreement within the EU on an oil embargo against Russia.

The energy ministers of the member states are meeting in Brussels this Monday (2 May) to discuss the issue.

After Berlin gave in, Hungary in particular, which is highly dependent on Russian oil, is seen as a potential blocker of a necessary unanimous decision on sanctions.

Prime Minister Viktor Orban, who is said to be very close to the Kremlin, announced a veto against any form of energy embargo after his re-election in early April.

However, resistance can also be expected from Austria and Slovakia, which are themselves dependent on Russian oil, as well as Spain, Italy and Greece, which fear a further increase in energy prices.

EU oil embargo against Russia: how to convince skeptical member states?

Since many EU countries still have concerns about an embargo on Russian oil, transitional periods could be decided.

According to information from the

, one suggestion could be to allow the import of Russian oil until autumn or even into winter.

This is intended to give the EU member states time to diversify their sources of oil.

A conceivable alternative to the import ban is the EU's upper price limit for oil from Russia.

The goal is to cap his income.

Whether Russia would respond is another matter.

This could be supported by the fact that Russia exports around two thirds of its oil to the EU, and finding a replacement for this will not be easy.

According to estimates by the Bruegel think tank, Russian oil worth around 450 million euros was recently imported into the EU every day.

EU oil embargo against Russia: What problems could there be in Germany?

In Germany there is a major hurdle for the oil embargo: the refinery in Schwedt, which is operated by the Russian state-owned company Rosneft.

It supplies large parts of East Germany.

So far, about a third of Russian oil has come to West Germany by ship and two thirds via the Druzhba pipeline to the refineries in Leuna in Saxony-Anhalt and Schwedt in Brandenburg.

The PCK refinery in Schwedt is controlled by the Russian Rosneft group.

© Christian Thiel/imago

According to Habeck, the purchasers in the west have already looked for new suppliers.

The Leuna operator Totalenergies wants to replace Russian oil by the end of the year, if necessary faster.

The remaining share of Russian oil of twelve percent goes to Schwedt.

From a purely technical point of view, an "alternative supply of the Schwedt refinery via the ports of Rostock and Gdansk would be possible", according to the energy security report.

But whether Rosneft would agree to this at all remains to be seen.

The federal government is therefore considering expropriation as a last resort.

The basis should be an amendment to the Energy Security Act, which could be decided by mid-May.

EU oil embargo against Russia: Do German consumers have to dig even deeper into their pockets?

Habeck said that an oil embargo would not go unnoticed in Germany either.

There will be high price jumps.

The changeover could also mean loss of time, said Habeck, referring to the refinery in Schwedt.

But an embargo no longer means that Germany is slipping into an "oil crisis".

One reason for the price jump is that the substitute for Russian crude is more expensive.

According to the economist Jens Südekum from the University of Düsseldorf, the raw material from Russia has been significantly cheaper than oil from other sources, which many now want, due to a lack of demand since the beginning of the war.

Since East Germany in particular has been dependent on Russian oil so far, large quantities have to be replaced there at higher prices.

This is likely to affect consumers in the region.

In Berlin, Brandenburg and Mecklenburg-Western Pomerania, nine out of ten cars are currently running on fuel from Schwedt.

Leuna supplies around 1300 petrol stations in Saxony-Anhalt, Saxony and Thuringia.

In addition, refineries in the West would have to contribute to the supply of East Germany, as energy expert Steffen Bukold writes in a study for Greenpeace.

That would mean transporting fuel or heating oil by truck or train, which would involve more effort and higher costs.

EU Oil Embargo Against Russia: What Does It Mean For Poorer Countries?

According to economists, an abrupt freeze on oil imports could drastically increase prices on the world market, which would primarily affect poorer countries.

According to the IMF, the inflation rate this year should be 5.7 percent in the industrialized countries and as much as 8.7 percent in emerging and developing countries.

Commodity prices, which include oil, gas and metals as well as wheat and corn, are an important driver of the inflation rate.

The IMF made it clear that the increase in petrol and food prices will primarily affect low-income households worldwide.

The price increases "could also significantly increase the likelihood of social unrest in poorer countries," it said.

Aid organizations warn that countries in the Middle East and Africa in particular could be severely affected.

There are already fears of more hunger in these regions of the world.

EU oil embargo against Russia: how does Kremlin chief Vladimir Putin react?

In view of a possible renunciation of Russian oil and gas in the EU, Vladimir Putin has called for new priorities in the expansion of the energy sector and in exports.

The Kremlin chief proposed the construction of new oil and gas pipelines from the deposits of western and eastern Siberia, as well as the expansion of oil terminals in the Arctic and in Russia's Far East.

He named Africa, Latin America and the Asia-Pacific region as future export destinations for Russian energy sources.

Exporting the oil by ship is a difficult undertaking.

Port workers in Amsterdam simply refused to handle a tanker from Russia.

According to information from the business

, dozens of oil tankers with Russian cargo are sailing the world's oceans without a clear destination.

According to this, a tanker belonging to the shipping company Sovcomflot, which transports crude oil and liquid gas for customers such as Lukoil and Gazprom, was rejected in Scotland.

The owner, state-owned SCF Group, is on Washington's blacklist of companies and banks banned from providing trade finance.

Against the background of the sanctions risk from the USA, buyers have to be careful.