Can the EU say goodbye to Russian oil?

Posted on : 2022-05-15 09:21 KST Modified on : 2022-05-15 09:21 KST
A recent proposal to ban imports of Russian oil to the EU could deal Russia a major blow if put into effect
Activists with Greenpeace in Germany hold a sign reading “peace not oil” during a protest in March. (AP/Yonhap News)
Activists with Greenpeace in Germany hold a sign reading “peace not oil” during a protest in March. (AP/Yonhap News)

Can Europe give up its dependence on Russian energy?

The European Union recently proposed banning imports of Russian petroleum as a way of sanctioning Russia for its invasion of Ukraine. The plan includes barring crude oil imports within six months and refined oil imports by the end of the year. Once it goes through approval procedures with its 27 members, the EU plans to put the ban in effect shortly.

Earlier in March, the US moved to announce plans for banning Russian crude oil and natural gas imports. The effects were purely symbolic, since Russia only accounted for around 3% of US crude oil imports.

But the situation is different for Europe, which is the recipient of nearly half of Russia’s crude oil exports. Europe’s embargo could actually deal Russia a major blow.

Because the European embargo plan involves stages over time, Russia could buy itself some time to soften the blow by cultivating alternative markets. Indeed, it has recently been hard at work pursuing exports to India, upping its share of the Indian market all the way to 17% — compared with 1% last year.

It’s also expected to be able to export more to China, which has steadily increased its Russian crude imports. But it remains uncertain how far this will go in replacing the European market.

The break with Russian oil will also be a formidable challenge for Europe, which relied on Russia for over a quarter of its crude oil last year.

International oil prices have been reacting sensitively, jumping by over 5% on May 4 after the plans for Europe’s embargo on Russian crude were announced. The large rise in oil prices places a major burden on European economies, where the alarm bells of high inflation have already been sounding.

The fact that each country is in a different situation could end up slowing any steps by the EU, which would need the approval of all member states before they could be implemented. Indeed, some countries that depend heavily on Russian crude — Hungary and Slovakia among them — have expressed their opposition, citing the potential for significant fallout for their respective economies.

But in a situation where countries would be hard-pressed to object to the urgency of sanctions against Russia, an agreement that would grant those countries an exception with a longer grace period is reportedly in sight.

Another question is whether Europe can come up with stable alternative supplies of petroleum. The likeliest alternative sources are Saudi Arabia and the United Arab Emirates — both of which have the potential to increase production by up to 2.5 million barrels a day.

Iran and Venezuela can also up their production by as much as 1.3 million barrels and 500,000–600,000 barrels, respectively, while the US is seen as capable of increasing its shale oil production to as much as 1 million barrels per day.

But such production increases would also have to happen within a complex political and economic environment. Currently at odds with the administration of US President Joe Biden, Saudi Arabia hasn’t budged at US demands for increased production. Washington has been taking steps to win it over — including dispatching Central Intelligence Agency (CIA) Director William Burns to the country — but it remains to be seen what the outcome will be.

With Iran currently subject to US sanctions, nuclear negotiations will be a key factor. But as one of the parties to those talks, Russia has been putting a deal out of reach by demanding an exemption from sanctions for Russia-Iran investment and trade as a precondition for signing on.

Venezuela is likewise subject to sanctions. The Biden administration has been in contact with it, but popular opposition at home means that there are potential costs. Analysts said that while Venezuela would not be able to ramp up oil production right away, it could do so within a matter of months if sanctions are relaxed so that facility investments can be made.

This means that whether Europe can say goodbye to Russian oil will come down to its political capabilities and those of the US.

By Park Byong-su, editorial writer

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