Per reporter: Li Menglin Per intern reporter: Zheng Yuhang Per editor: Lan Suying
Image source: Photo Network - 501522339
For decades, a steady stream of crude oil flowed from the cold land of Russia into a giant refinery in the German industrial city of Schwert on the Oder River, providing jobs for thousands of workers and bringing reliable fuel to the citizens of the capital Berlin and a warm winter.
But in recent days, the European Union has begun to push for an embargo on Russian oil imports, trying to further "punish" and sanction Russia. Germany, which is very dependent on Russian oil, has also repeatedly stressed that the embargo on Russian oil is "on the string".
However, according to CCTV, on May 24, local time, European Commission President von der Leyen said that at the upcoming EU special summit at the end of this month, it is unlikely that all parties will find a solution to the issue of the oil embargo on Russia.
"Overall, Europe accounts for 60% of Russia's oil export share, if the EU bans the import of Russian crude oil, The export volume of Russian crude oil may decrease, and international oil prices will continue to rise, which is not good for the world's economies and oil consuming countries," Adi Imsirovic, former global oil director of Gazprom and now a senior researcher at the Oxford Energy Research Institute in the United Kingdom, told the Daily Economic News in an email.
According to the Wall Street Journal, Hungary is currently the only member state that opposes Russia's oil embargo program. CCTV News said that the Hungarian prime minister reiterated on May 25 that the energy supply problem in Hungary must be resolved before the EU sanctions against Russia.
At present, the global idle oil production capacity is less than 2%. If the EU really issues an "oil ban order" against Russia, who will be hurt? How will global oil prices fare?
The "split" of the European Union
The European Union is seeking to expand energy sanctions against Russia, embargoing oil from Russia.
However, European Commission President von der Leyen said at the Davos Forum in Switzerland on May 24 that she did not believe a decision to ban Russian oil would be made at the EU summit. A spokesman said a deal could be reached in a matter of days, but it could also take weeks. According to the plan, the EU will hold a special summit from 30 to 31 this month, focusing on Ukraine, defense, energy and security.
However, von der Leyen also pointed out that the European Commission is in talks with member states. Notably, the oil embargo is at the heart of the sixth round of sanctions and is one of the toughest measures Europe has taken against Russia to date.
On May 24, local time, Hungarian Prime Minister Orbán announced that Hungary would enter a state of wartime emergency from 00:00 on the 25th. He also reiterated that hungary's energy supply problem must be resolved before the EU sanctions on Russia.
In fact, Hungary has expressed great concern since the EU first launched the proposal on May 4, with the government's international spokesman, Zoltán Kovács, saying on social media: "We have not seen any transition plans or guarantees on the current proposal and how to guarantee Hungary's energy security." France-based Euronews previously reported that the Hungarian government sees further sanctions on Russian fossil fuels as a "red line."
Euronews also learned that in addition to Hungary's explicit objections, Italy, Greece and Austria have stressed during the EU proposal consultations that there needs to be enough time to adjust their energy supply chains, while Greece, Malta, Cyprus, Belgium and the Netherlands have also pointed out that the proposal will bring economic losses to the local shipping industry. Slovakia wants to spend a year gradually reducing imports of Russian oil, rather than simply "one size fits all".
As one of the main consumers of Russian oil, Germany was once one of the countries that opposed the restriction of Russian oil imports, but its position has changed in recent days. According to Deutsche Zeitung, Germany has shifted its position on the Russian oil embargo because of its recent success in finding an alternative oil supplier.
German Deputy Chancellor and Minister of Economy and Climate Protection Robert Hubeck even said in an interview with a German news channel, "If the President of the European Commission says that we exclude Hungary and do that with the consent of 26 countries (with the implementation of the Russian oil embargo), I will support this path, but I have not heard from the EU yet." ”
Fear of falling into "both sides lose"
For the "split" situation of EU member states, Adi Imsirovic, former head of global oil at Gazprom and now senior researcher at the Oxford Energy Research Institute in the United Kingdom, told the Daily Economic News reporter in an email, "From the current situation within the EU, it is difficult to completely ban Russian crude oil." These EU decisions require unanimous approval by member states in order to be implemented. ”
Von der Leyen also said, "It is not easy to ban Russian crude oil throughout Europe, and some member states rely heavily on Russian oil." According to eurostat reports, Russia is Europe's largest oil supplier from 2020 to 2021. The data shows that 24.8% of the EU's oil imports come from Russia, compared with 25.7% in 2020.
Even in the context of the Russian-Ukrainian conflict, the EU is still heavily dependent on Russia for fossil fuels. A recent report by CREA, a helsinki-based nonprofit think tank, showed that Russia exported about $66 billion worth of fossil fuels in the two months since the conflict broke out, with the European Union accounting for 71 percent of that trade.
Russia's fossil energy exports since the Russian-Ukrainian conflict Image source: CREA report
Separately, the Financial Times quoted Kpler, a commodity analysis library, as saying that between February and May this year, Italy imported 450,000 barrels of crude oil from Russia, the highest level since 2013 and four times that before the Russian-Ukrainian conflict.
What would it be like if the EU did embargo Russian oil?
"Currently, Russia's oil exports to Europe are the second largest bilateral trade flows (energy flows) in the world. If Russian oil is banned by the European Union, Russia may sell it to asian buyers at a greater discount (30% or more). But this is a very big blow for refineries in the interior of Europe. Adi Imsirovic told the Daily Economic News. He believes that European countries may only be able to replace Russian oil by importing oil in other ways (e.g., from the United States and West Africa).
Greg Upton, a professor at the Energy Research Center at Louisiana State University in the United States, believes that this is a "lose-lose" situation for both the EU's refineries and Russia's oil producers. He told the Daily Economic News that although Russia can sell oil that was originally sold to Europe to other places (such as Asian countries such as China and India), there will be additional costs for supply chain adjustments. This will undoubtedly have a negative impact on the Russian economy as well.
In addition, the reporter found through the data that Bruegel, an independent European research think tank, had released a research report that if the oil infrastructure and refineries in Europe used crude oil of different quality than Russia, the production efficiency would be reduced.
Where does the oil market go from here?
Although member states have not yet reached an agreement, the EU's oil ban on Russia seems to be "on the string". In March and April, the United States and the United Kingdom, respectively, formally banned oil imports from Russia.
Since the European Union planned to expand energy sanctions against Russia, the tight global oil supply expectations have heated up sharply, and oil prices have continued to rise. According to the American Automobile Association (AAA), gasoline prices in 50 states broke through the $4 mark for the first time in history last week. Data from the Royal Automobile Club (RAC) show that on May 23, the average price of petrol at petrol stations in the UK soared to an all-time high. Unleaded gasoline prices hit 169.61 pence a liter on Monday.
"Overall, Europe accounts for 60% of Russia's oil exports, and if the EU bans the import of Russian crude oil, the export volume of Russian crude oil may decrease, and international oil prices will continue to rise, which is not good for the world's economies and oil consuming countries," Adi Imsirovic told the Daily Economic News.
In addition to sanctions against Russia, Greg Upton told the Daily Economic News that the global economy is recovering from the recession caused by the new crown, which has also led to higher global oil prices.
"There is less than 2 percent of idle oil capacity in the world. Oil consumption in the aviation industry under COVID-19 has shrunk by 2.5 million bpd compared to pre-pandemic levels. If the aviation industry begins to recover, the oil industry will face major problems," Saudi Aramco CEO Amin Nasser warned at the World Economic Forum in Davos today. After the lockdown eases, global oil demand resumes growth, and the capacity crisis will become more serious. ”
In this tense situation, other oil-producing countries are pinned on many expectations to fill the huge crude oil gap left by Russia.
According to Xinhua News Agency, Saudi Arabia has the most surplus production capacity among OPEC members, totaling about 2.5 million barrels per day. In order to stabilize oil prices, the United States has recently repeatedly asked Saudi Arabia to increase production separately from the production quotas agreed between OPEC and non-OPEC major oil producers, but Saudi Arabia has ignored this and is unlikely to heed the EU's call for production increases.
However, the "Daily Economic News" reporter noted that Saudi Arabia has been seeking a neutral position in the Russian-European oil game.
In an interview with the Financial Times on May 23, Prince Abdulaziz bin Salman said Saudi Arabia wants to reach an agreement with OPEC+ that includes Russia and supports Russia's continued role in OPEC+. He also said OPEC+ should exclude politics. However, regarding its latest production agreement, the prince said that given the uncertainty of the market, it is too early to determine the specific situation. In fact, since 2016, Saudi Arabia has been coordinating oil output quotas with Russia through OPEC+.
In response to the strong support of OPEC members for Russia, Adi Imsirovic commented to the "Daily Economic News" reporter that OPEC took decades to get Russia to join, and they are not willing to give up relations with Russia, one of the world's three largest oil producers.
"In the future, if there is another factor that causes declining oil demand (such as climate change), OPEC hopes that Russia, a huge oil producer, will be on their side." Adi Imsirovic further explains.
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