Replacing Russian oil may be easier than blocking natural gas. But the risk is a further global rise in energy prices. the sky wall
The European Commission’s proposal to block imports of Russian oil, if confirmed by member states, could cause significant damage to the Russian economy. Contrary to popular belief, oil represents a much higher income for Moscow than natural gas. Moscow has brought in nearly $180 billion since the first (including related refined products, such as diesel and plastic) last year, according to data from the Russian Ministry of Economy. While natural gas revenues were about a third. Figures that will vary upwards this year, but should remain virtually unchanged in proportion.
Because Brussels wants to start with oil
At the same time, it is easier for Brussels to replace Russian oil than to achieve the same result with gas. Crude oil is mainly transported by ship and not through gas pipelines, which inevitably limits the flexibility of trade.
Global price rise risk
On the other hand, however, the ease of oil exchange makes the crude oil market global, with a very similar price around the world. This is why for the EU the problem of a Russian embargo could have more to do with the price than the quantities of oil. Reducing global supply could cause prices to rise globally as Russian production cannot be replaced in the near term, according to OPEC. With the undesirable effect that Moscow could sell less oil, but at higher prices, reducing lost revenue.
EU less dependent than on Russian gas
Focused on volumes, the European Union is less dependent on Russian oil than on natural gas. The average – between crude oil and refined products – was 22 percent in 2020 according to Eurostat data. Germany was just above the average – 29 percent – while Italy and France were below. The countries of Eastern Europe, on the other hand, are among the most vulnerable, especially Slovakia and Hungary which are connected to Russia by oil pipelines.
Western “self-sanctions”
These percentages have already been reduced in the first months of 2022. In fact, Western energy companies have already reduced purchases of Russian oil, even without EU embargoes, for fear of reputational damage and sanctions. That is why Russia itself – even before the European Commission’s proposal – predicted a 17% reduction in crude oil production in 2022 compared to the previous year.
Those who continue to buy Russian oil – European countries like Germany and Greece, as well as India and China – do so at very affordable prices. Indeed, Russian oil has less and less market and buyers can negotiate lower prices. The difference in the prices of the Urals, Russian oil and WTI, the US price, has gradually widened after the Russian invasion.
There is oil and oil
However, the difficulties of replacing Russian oil for the EU do not stop at prices and volumes. In fact, the continent’s refineries cannot use any form of crude oil to produce refined products, such as diesel. There are different types of oil, heavy or light.
An interesting case is, for example, that of Priolo Gargallo, in the province of Syracuse. Here is one of the most important refineries in Italy, owned by Lukoil, the Russian oil giant. If the embargo is confirmed, alternative crude for the Russians will have to come here to save the jobs of 3,500 workers and not cause problems with supplies to Sicily, whose gas stations depend on this refinery.
Source: TG 24 Sky
I am Annabelle Sampson and I work for The News Dept as an author for their news department. My main focus is on economy news, but I also cover other topics such as business, finance, and current affairs. My writing has been featured in prominent publications such as The Wall Street Journal, Forbes Magazine, and the Financial Times. I have a passion for learning more about economic trends and understanding how they affect businesses of all sizes. To stay up to date with the latest developments in the field of economics, I make sure to keep track of reliable sources like Bloomberg News or Reuters. In addition to my writing work, I often provide consultation services related to economic matters for clients both large and small.
