Debate over the consequences of the EU oil embargo: The EU is planning a sixth package of sanctions against Moscow, with an oil embargo by the end of the year, but economists are skeptical of its effect.
After lengthy debates, European Commission President Ursula von der Leyen presented the proposal for the sixth package of sanctions against Moscow to the European Parliament on Wednesday. New is the list of officers and persons who in Butça “committed war crimes” and those responsible for the inhuman occupation of Mariupol. Sberbank as well as two other banks will be excluded from the Swift payment system, thus disconnecting the Russian financial sector from the global system. Only Gazprom-Bank remains, through which payments for energy are made. Three Russian state television stations are on the sanctions list.
But the essence of this package is the phased boycott of Russian oil imports. It is a complete ban on imports of Russian oil, whether by sea or pipeline, as proposed by the European Commission. Oil will have to be blocked within 6 months, refinery products by the end of the year.
The overall deal though still has problems
At a time when Germany was initially a deterrent to energy boycotts, Economy Minister Robert Habeck signaled earlier this week the return to Berlin and called for an oil embargo despite some difficulties. Objections came from Hungary, Slovakia and Austria, all three of which are completely or largely dependent on Russian oil imports. For Budapest and Bratislava there will therefore be exceptions. The government in Budapest reacted to the EU proposal by saying that the plan does not look at a plan to guarantee Russia’s energy security. Earlier, Viktor Orban, close to the Russian president, had said that he did not mean to oppose the boycott politically.
Political parties in the European Parliament welcomed the announced boycott. Jens Geier from the Social Democrats said that the several-phase break from Russian oil gives the economy time to find alternatives and mitigates the social consequences. Governments need to be wary of side effects “such as rising prices and damage to critical sectors of the economy”. Green MEP Sergey Lagodinksy said the oil boycott would hit Russia hard and that the EU was serious. But such an energy embargo must mitigate the social effects of rising prices. However, Europe can and should pay the price, because it is about its credibility in the face of Putin. Beata Szidlo, MEP of the ruling party in Poland,
Experts have doubts
But does the embargo hit Putin’s war economy in several stages, as the Europeans predict?The Institute of Energy Economics, “Rystad Energy” estimates, that despite the expected decline in Russian oil production this year, Russia’s revenues will increase due to rising oil prices to $ 180 billion. This is almost half more than last year and although production since the beginning of the war has dropped by 1.6 billion barrels. “In this first phase of sanctions and embargoes, Russia will benefit from the price increase of previous years,” said economic analyst Daria Melnik. But in the medium term, Moscow’s output and revenues will fall, because a reorientation for buyers in Asian markets will require time and massive infrastructure investment. According to experts only from the middle of next year, oil production in Russia will be rehabilitated.
The Financial Times writes that it will be difficult to implement the oil embargo, “without raising prices in world markets, which could lead to a strong downturn in the world economy.” There is not much oil available on the world market and it is not certain whether OPEC and major producers like Saudi Arabia are willing to replace Russian oil. Simply the announcement that came from the EU about the embargo increased the price by 3%.
The most effective customs
Even experts at the Brussels Institute Bruegel have doubts about the effect of the oil embargo. Guntram Wolff and Simone Tagliapietra recall that the expected rise in prices may even offset the decline in oil exports. Moscow can use this short-term effect for its citizens, because the state budget is financed almost half of it by energy exports. Only a full and immediate energy embargo would have a strong effect, economists say, because the several-phase break from Russian oil gives Russia time to reorient its exports. Customs fines would be even more effective, “because they can be adapted to political development,” and they could be used to rebuild Ukraine, experts say. Even Greenpeace is rapidly growing. /DW
