EU plans "oil embargo light": What does that mean for Germany?

Created: 05/31/2022Updated: 05/31/2022 16:42

Viewed from above: Huge tank containers are located on the premises of PCK and eleven tank farms in Seefeld (Brandenburg).

© Patrick Pleul/dpa

Russia should not finance its war against Ukraine with money from energy exports - that is the idea behind the new EU sanctions.

But the consequences will also be painful in this country.

Brussels/Berlin - Negotiations have been going on for weeks, and now the compromise is in place: Chancellor Olaf Scholz and the other heads of state and government agreed at the Brussels summit on an extensive oil boycott against Russia because of the Ukraine war.

This is just an "oil embargo light", analyzed the energy expert Claudia Kemfert.

Nevertheless, it will have far-reaching consequences, also for millions of people in Germany.

Especially in the eastern federal states, many fear for jobs and fear queues at gas stations and higher prices.

Many things are not easy to assess, even for experts.

The Brussels compromise: No tanker oil, yes pipeline oil

Originally, the EU Commission had proposed ending imports of crude oil from Russia within six months.

At Hungary's insistence, however, it was decided that only Russian oil deliveries by sea would be stopped for the time being.

Transports by pipeline should initially continue to be possible.

Transitional periods and details are missing from the summit decision.

They are likely to be formulated by diplomats in the next few days.

With the compromise, "Europe was able to prevent embarrassment," said Kemfert, a specialist at the German Institute for Economic Research (DIW).

The "light" embargo will hit Russia hard.

This is also the assumption of the Federation of German Industries, which supports the Brussels resolutions.

German dependence on Russian oil decreased

For Germany, the situation after this EU compromise is as follows: According to Economics Minister Robert Habeck (Greens), the share of Russian oil in German consumption has already fallen from 35 percent before the Ukraine war to 12 percent.

Tanker oil - about a third of the amount before the war - had been replaced, Habeck said at the beginning of May.

So the EU decision doesn't change anything.

Before the war, however, two thirds of German oil imports from Russia came via the “Druschba” pipeline to the large East German refineries in Leuna and Schwedt.

Germany and Poland voluntarily renounce

Theoretically, Leuna and Schwedt could continue to be supplied via the "Druschba" after the EU decision, since the pipeline is exempt from the embargo for the time being.

But Germany and Poland made a so-called protocol declaration at the EU summit: they confirmed in writing that they would stop buying Russian oil by the end of the year.

In practice, the "pipeline exception" only applies to Hungary, Slovakia and the Czech Republic.

According to EU diplomats, the statement also served to facilitate the compromise.

For some EU countries it would have been completely unacceptable if an economically strong country like Germany had continued to benefit from cheap Russian oil.

There are protests

While the operator Totalenergies has already announced that it will not use Russian oil for the Central German refinery in Leuna, the case for the PCK refinery in Schwedt with around 1,200 employees is different: it is supplied by the German subsidiary of the Russian state-owned company Rosneft with Russian oil from the “Druzhba” operated.

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Habeck is looking for alternative delivery routes for Schwedt with tanker oil via Rostock and Gdansk.

But the state of Brandenburg fears that the refinery would only be used to 60 percent capacity.

The concern: The system could become uneconomical and jobs could be lost.

And the supply of East German gas stations, industry and heating oil tanks could stutter.

Habeck promised deliveries from the oil reserve in the west and financial aid.

But the mayor of Schwedt, Annekathrin Hoppe (SPD), is calling for the location to be exempted from the embargo.

The PCK refinery is said to continue processing Russian oil from the Druzhba pipeline.

The left-wing faction's commissioner for the east, Sören Pellmann, also told the German Press Agency: "If there are exceptions for EU states, East Germany should also be able to make use of them."

Prices are likely to rise - forecast difficult

For all German consumers and industry, the "oil embargo light" should also have an impact on costs.

Because Russian oil has to be replaced on the world market, demand drives up prices.

In fact, crude oil prices rose significantly on Tuesday.

But even experts have a hard time making forecasts.

The Fuels and Energy trade association explained on request: “It is clear that with an oil embargo on Russian oil, sources of supply on the world market will be lost for Germany.

It is not possible to predict how prices will develop in the medium term as a result.” The Düsseldorf economist Jens Südekum expressed a similar view, but added: “I do not assume that there will be shock price jumps.”

At the same time there is relief

The head of the International Energy Agency (IEA), Fatih Birol, warned in the "Spiegel" of fuel shortages: "The oil markets could be tight next summer." When the main holiday season in Europe and the USA starts, the demand for fuel will increase.

Then there could be bottlenecks.

However, according to Südekum, it is also difficult to predict the prices at the pump.

"There is a market with many influencing factors when it comes to the price of petrol," said the expert.

"But if my thesis on crude oil prices is correct, then there shouldn't be any jumps in petrol prices or they would have to have other causes.

In fact, the tank discount that came into effect on June 1 should now actually dominate, so that the prices at the gas station are falling.”

This tank discount is part of the federal government's relief package: From Wednesday to the end of August, the tax burden on fuel will drop by 35.2 cents per liter for premium petrol and by 16.7 cents per liter for diesel.

Will that offset the possible effect of the oil embargo?

Südekum is cautious: “In previous similar decisions, we saw that only 60 percent of such tax cuts were passed on to consumers.

Now that both are coming together – the oil embargo and the tank discount – it will probably only be possible to forensically understand how the prices have developed in retrospect.” dpa