For the President of Ukraine, Volodymyr Zelensky, the matter is clear: the embargo on Russia is a necessity. Any new package, which does not include oil, will be “welcomed with a smile” in Moscow – this statement Kyiv echoes in the face of a mantra. However, following the introduction of the import ban, the EU refuses to stop importing Russian oil.
The fear of economic loss is too great. It was only on Wednesday (April 13, 2022) that Chancellor Olaf Scholz again rejected the proposal to impose an embargo on oil by the EU. The United States, Canada and Australia have already taken this step.
Schwedt is a German oil center. Without Russian oil “in much of eastern Germany nothing will work”
Why is there so much fear in Germany? How hard could an import ban hit in the EU? This can be stated with absolute certainty at Schwedt. The city is located in the German state of Brandenburg and is the German center of oil – at least in East Germany. According to its own information, the local Polish Red Cross refinery produces almost 90 percent of gasoline, kerosene, diesel and heating oil in the entire region. According to the operators, Russian crude oil is processed there into almost 20 different fuels. The homepage reads: “We set Berlin and Brandenburg in motion”. Like many refineries, the plant receives crude oil directly from the “Przyjaźń” pipeline. The technological process is fully adapted to the high sulfur content of Russian oil. Switching to a different quality of raw material is relatively costly. “If the Schwedt refinery is no longer supplied with Russian oil, nothing will work in much of eastern Germany,” an informant told Handelsblatt a few days ago.
About 12 million tonnes of crude oil are processed here each year – more than a third of the annual oil imports from Russia. According to research by Bayerischer Rundfunk, it amounts to approximately 30 million tons per year. In the last quarter of last year, Germany transferred over a billion euros to Moscow – just for oil.
“Oil theoretically easier to replace in the EU than gas”
In 2019, the EU covered a quarter of its needs with oil from Russia. Germany produces 36 percent of its energy from oil and is therefore in the middle of European consumption. The situation is completely different in Malta, Cyprus and Greece. In the latter, according to European data, crude oil accounts for more than half of the consumed. And in Malta and Cyprus, more than 80 percent. Most of the imports come from Russia due to its geographical proximity. In the latest negotiations on sanctions at EU level, Hungary, Germany and Austria did not take any action. Sweden, Denmark and Finland also refuse to boycott oil.
Overall, oil is at least theoretically easier to substitute in the EU than gas because it is relatively easy to load on tankers and ship around the world, says Kai Eckert of the Energy Information Service for DW. Contrary to the so-called liquefied natural gas (LNG) infrastructure is available. Nevertheless, it will increase the price of this raw material. – Oil from Russia is delivered via the Druzhba pipeline with fairly stable transport costs. If we now switch to import from other countries, it will be almost exclusively by sea, and transport costs and delivery times are higher there, which will be reflected in the price – explains the expert.
Oil diplomacy during the war in Ukraine
But can this raw material be replaced at all in a short time? According to the International Energy Agency (IEA), in 2021 the EU purchased 2.2 million barrels of crude oil and 1.2 million barrels of petroleum products from Russia per day. Kai Eckert assumes that it is possible to obtain such amounts of oil through other regions. Germany and the EU are currently looking for alternative solutions. Recently, Economy Minister Habeck traveled to the Arab Emirates. Will Venezuela or Iran be next? If so, the old sanctions would have to be lifted. At least in the case of the US, the EU has a democratic partner who is already increasing production.
– There is also OPEC. In the short term, this oil cartel could produce an additional two million barrels, said Barbara Lambrecht, commerzbank raw materials expert, asked by DW. The problem, however, is Russia’s membership of the expanded OPEC + squad, says Lambrecht. – For now, there is no risk of breaking cooperation, instead Russia sticks to the gradual increase in oil production to the end – the expert points out. The Secretary General of OPEC recently rejected an EU proposal to replace imports from Russia.
Oil the main source of profits for Putin
Russia’s crude oil revenues accounted for around 30 percent of the Russian state budget last year. By comparison, gas that is much more difficult to replace is only 6 percent. According to calculations by the European think-tank, Bruegel, the EU currently imports crude oil worth € 450 million a day. The lack of this income could significantly weaken Moscow.
The question of how quickly Moscow can replace its existing partners with new ones, however, is a moot point. – Russia will need time to look for new markets – says the Commerzbank expert. In addition, Russian pipelines to the EU, such as the Druzhba pipeline, which are much cheaper to transport, are unlikely to be used any longer.
Moscow is therefore in a similar transition phase to the EU in the short and medium term. The key question is therefore whether Moscow will be able to sell Russia’s increasingly available oil reserves. According to Kai Eckert, “it may be at a discount, but oil will still find buyers.”
The suspension of Russian oil imports by the EU could raise the prices of the raw material
They can play a major role here. The hunger for energy in the Middle Kingdom is still huge. Commerzbank points out that India has already bought “significant amounts”. Nevertheless, according to Lambrecht, there will be new buyers “gradually”. Daily oil production in Russia has decreased. Thanks to new partners, trade routes have become longer, and as a result, “tankers are now on the way longer. This limits the possibilities. Moreover, many shipping companies do not currently call at Russian ports for reasons of safety and loss of reputation.”
Most experts agree, however, that halting EU imports could raise oil prices even further. For Russia, the rising oil price could compensate for the lack of export earnings to the EU. In such a case, the desired effects of the sanctions would be lost. However, if in the medium term Russia actually sells much less and the price stabilizes, the EU target will be achieved and Putin will be hit hard.
Germany has 200 days of oil reserves
Either way, the days of cheap oil delivered via pipelines from Russia are numbered. German Economy Minister Robert Habeck (the Greens) would like Germany to be “almost independent” of Russian oil imports by the end of the year. It is still unclear how this can be achieved. Renewable energies take longer to develop and alternative sources are yet to be specified. Many countries of the European Union probably think similarly. However, the EU High Representative for Foreign Affairs, Josep Borrell, has recently made it clear that work is underway to tackle the oil problem quickly. “Nothing is out of the question, including sanctions against oil and gas,” said Borrell.
If imports are stopped sooner, Germany will at least have a domestic oil reserve that was created 50 years ago due to the oil crisis. According to the document of the Federal Ministry of Economy and Technology quoted by “Handelsblatt”, this would be enough for 200 days without supplies from Russia.
However, the document also showed that the planning did not take into account the quality of the crude oil and the possibility of its transport. On the other hand, this means that especially in towns such as Schwedt, which depend on the pipeline, the situation can be difficult in the event of an abrupt cessation of imports.
Nevertheless, the economic losses would be quantifiable, at least for Germany. It is said in some quarters that the main concern is that Putin will turn off gas in response to the EU’s oil import stoppage. This would have huge consequences for many countries, especially Germany.
Author: Nicolas Martin
Source: Gazeta
Ricardo is a renowned author and journalist, known for his exceptional writing on top-news stories. He currently works as a writer at the 247 News Agency, where he is known for his ability to deliver breaking news and insightful analysis on the most pressing issues of the day.
