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Embargo on Russian oil: why the European Union hesitates


Expensive, complicated to set up and, in the end, perhaps not very effective. For all its reasons, the embargo on Russian oil raises many questions among the members of the European Union (EU), divided between the desire not to finance the war waged by Vladimir Putin and the desire not to penalize their savings.

→ UNDERSTAND. War in Ukraine: Europeans remain divided over a Russian oil embargo

Between the end of February, with the invasion of Ukraine, and the beginning of May, the EU paid 20 billion euros to Russia for its purchases of oil, to which are added 30 billion euros of gas, estimates Thomas Pellerin-Carlin, researcher at the Jacques-Delors Institute, recalling that the annual budget of the Russian army is around 60 billion euros.

Variable dependence depending on the country

Russia is the first supplier of crude oil to the European Union, with around 30% of its imports. Europe’s dependence on refined products is even greater, since Russia provides 40% of its needs.

But not all countries are in the same boat, hence the lengthy negotiations in Brussels around the embargo. Hungary is 60% dependent on Russian oil, while it represents 34% of German crude imports and 8% of French imports.

Hence the idea, put forward by France, of limiting the embargo to oil coming by sea (two-thirds of deliveries) and excluding crude transported from Russia by the Russian Drjouba oil pipeline (the “pipeline of friendship”), which feeds Hungary in particular.

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Negotiate new contracts

In any case, the cessation of purchases of Russian crude cannot be done overnight. This explains why the embargo cannot be put in place before the end of the year. Until then, we must find other suppliers and ships to bring in the oil, but also negotiate new contracts, while the market is very tight. All of this necessarily takes time, even if the Europeans are already preparing for it.

“We no longer buy Russian oil on the spot market and other players are doing the same as us”, explained Patrick Pouyanné, CEO of TotalEnergies, during the general meeting of shareholders, Wednesday, May 25, recalling that sourcing elsewhere represents a higher price.

The Russian diesel purchased by TotalEnergies for Europe will, for its part, be replaced, for example, by that manufactured in a refinery in Saudi Arabia, in which the group has a stake. Here too the bill will be more salty.

Edit refineries

Not all crudes are created equal. They are classified according to their density, with, for example, light oil (like the Russian, said to be from the Urals), heavy and extra-heavy (like that from Venezuela). Light oils are used to produce diesel, gasoline, naphtha to make plastics. Heavy oils, less valued, provide fuel for boats and planes, but also bitumen.

Depending on the deposits, oil also has different sulfur contents. “Refineries are optimized based on their crude supply. If you change the type of oil, you have to review all the settings, or even build desulphurization units, which are costly investments,” points out Olivier Appert, member of the Académie des technologies and advisor to the Ifri energy center.

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The fear of a new oil shock

What will be the impact on prices of an upcoming embargo on Russian oil? For now, analysts are lost in guesswork. Those of Bank of America estimate that the barrel could quickly rise to 150 dollars, thus causing a new oil shock for the European economies.

Russia would also be affected, because the EU represents an essential outlet for it: 54% of its oil exports and 53% of its oil products. But an embargo will not fundamentally harm Russia, which will redirect its sales, particularly towards Asia. The first beneficiaries will be China and India who will buy it cheaper,” emphasizes Olivier Appert.

Sanctions against Russia have thus led to a fall in the price of the Urals barrel. “It is worth around $35 less than Brent, whereas at the start of the year the two were almost at par. But given current price levels, the impact is limited for Russians,” recalls Lionel Ragot, professor at Paris Nanterre and scientific advisor to Cepii.

According to him, Russia could also put pressure on its OPEC + partners, so that they do not increase their production, thus maintaining prices at high levels.

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