It took nearly 100 days for the European Union, three months after Moscow’s attack in Ukraine on the night 23 August, to issue an embargo against Russian oil. February 24,
A hundred days is very short, considering Europe’s high exposures to Russian hydrocarbons and it is very long, considering the comfort Moscow gets from its exports. The embargo against Russian coal has been confirmed by the 27 countries. They pledged to reduce gas imports and work with the most affected Central and Eastern European countries.
Each day, the European Union spends 600 million dollars to Russia for fossil fuels (coal and oil as well as derived products). The EU has been increasing sanctions for the past three months but is still struggling to reduce its dependence on these energy sources.
The most affected countries in Central and Eastern Europe are those that depend on Russian gas and oil. Three of these countries are landlocked, namely Hungary, Czech Republic, and Slovakia.
According to data from the Center for Research on Energy and Clean Air, 55 billion dollars has been paid by the EU to Moscow for hydrocarbons since the start of the conflict. Half of that amount was for oil.
Since the beginning of the offensive at February’s end, 68% of Russian hydrocarbon exports were directed to European Union countries.
The concessions made to Hungary, Slovakia and the Czech Republic, which were the most vulnerable, did not lead to an agreement at the beginning of May. This was especially true for Budapest, whose opposition is less strong to Putin.
It is not surprising that the agreement reached a month later was more of a compromise rather than a formal embargo.
Concretely, this will affect only oil transported by sea, ie two thirds of European purchases. Charles Michel, President of European Council, enthusiastically mentioned 75% with a goal of 90% by the end.
An exemption of “temporary” has been granted to those states that are both highly dependent and landlocked on oil delivered by pipeline. This includes the Druzhba Pipeline, which supplies the bulk of imports not only from Hungary (65%), Slovakia, and the Czech Republic.
Victor Orban, the Hungarian Prime Minister, said that “it’s a good option”, but was concerned about “what will happen to the pipeline carrying Russian crude oil.”
This decision is not always immediately applicable. The goal is to reduce Russian oil imports into the EU by approximately 90% by the end.
The embargo applies to crude oil for six months and refined products, including diesel, for eight months. This is the most powerful, but also the most difficult to implement, of the sixth set sanctions against Russia.
The extension of the embargo on pipeline deliveries will be discussed then “as soon possible” without any deadline being established by the agreement.
Budapest could therefore benefit from Russian oil coming via the Druzhba pipe for a long period of time. It required a four year derogation. Slovaks and Czechs should be able to get rid of Russian dependence on oil faster. They had been satisfied with a two year derogation.
Hungary, a true “arbiter”, had obstructed the first attempt to reach an agreement in May. It is a promoter of its own interests. It estimates it will need 750 million euros to modernize its refineries and maximize the exploitation, Druzhba-sized, of Croatian oil coming through another pipeline.
Victor Orban believes that 18 billion euros is what he will need to invest in the long-term to eliminate Russian oil dependence. He is also counting on the European Union for financing this amount.
The risk of supply disruptions in France seems to have been eliminated.
As long as we have a few months to reorganize logistics flow, there is no major supply problem.
Olivier Gantois (president of Ufip Energies and Mobilities), May 1st
To add, “that there are already options which are essentially for crude oils the Middle East and North America”.
The question of diesel remains, which is part of the petroleum derivatives category, and has been affected by the embargo. However, Indian imports should resolve this issue. Olivier Gantois predicts that Russian oil will be exported to India, China, South American, and African countries, which allows for the sale of “non-Russian barrels” normally purchased by these countries.
Prices are at risk, particularly if OPEC (which includes Russia) does not decide on more production.
But the risk is minimal, says Thierry Bros. “If there was a total embargo on all goods and services, prices might have moved.” We keep the flows that have been already recorded. These balances are already taken into consideration in current prices. Oil is expensive and will continue to be so. He concludes that the only people who will benefit from this light embargo is China, which will continue to be able to purchase oil at lower prices.”
