Russia’s decades-long dominance of Europe’s energy market is crumbling, and the biggest blow is expected this week as the EU moves towards sanctions on Russian oil.
Analysts say it would be possible to sever Europe’s oil ties with Russia, but the effort would take time and could lead to shortages and higher prices of gasoline, diesel, jet fuel and other products – a situation already exacerbated by inflation. and ultimately derailed the economic recovery from the pandemic.
“It’s going to get complicated,” said Richard Bronze, head of geopolitics at Energy Aspects, a research firm. “You’ve got to connect two very interconnected parts of the global energy system,” he said. “There are going to be disruptions and costs associated with that.
“But policymakers are increasingly convinced that it is necessary and preferable to do so relatively quickly to reduce revenues for Russia’s funding and to reduce European exposure to Russian influence,” Bronze said.
The EU’s goals are clear. With Russia continuing the war in Ukraine, Europe seeks to deprive President Vladimir Putin of funding from the sale of oil, usually his biggest export earner and a cornerstone of the Russian economy. Florian Thaler, CEO of energy research firm OilX, estimates Russia’s oil sales in Europe at $310 million a day.
The move against oil would be part of an effort to end Moscow’s ability to turn European weapons on energy. In its latest attempt to do so last week, Russia cut natural gas supplies to Poland and Bulgaria. Analysts say Russian oil may be an easier target than gas. The oil system may have reconfigured itself, said Oswald Klimt, an analyst at Bernstein, a research firm, adding that oil was “a very deep, liquid and fungible market” served by thousands of tankers.
Still, for the EU, separating itself from Russian oil would be an uphill task that could put the sowing split at risk. About 25% of Europe’s crude oil comes from Russia, but there are wide differences in dependency levels between countries, with the general rule that countries geographically closer to Russia are more embroiled in its energy net.
Hungary, Slovakia, Finland and Bulgaria usually import more than 75% of their oil from Russia and may soon struggle to replace it with alternative sources.
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