Breakingviews: Oil embargo will hurt Putin more than EU

Illustration shows models of oil barrels and a pump jack in front of U.S. and Russia flag colors
Models of oil barrels and a pump jack are seen in front of displayed EU and Russia flag colours in this illustration taken March 8, 2022. REUTERS/Dado Ruvic/Illustration

MILAN, May 31 Reuters Breakingviews) - After some hesitation, the European Union has decided to ban most Russian oil imports. Replacing Urals crude with more expensive Brent will swell the bloc’s already red-hot energy bill. Still, the move will shrink Moscow’s most lucrative export revenue source and help stunt Vladimir Putin’s war machine.

The bloc’s new sanctions package, due to be formalised by EU leaders later on Tuesday, envisages an immediate ban on 75% of Europe’s imports of Russian crude. This will rise to 90% by year end. The partial embargo is intended to allow naysayer Hungary and other landlocked countries to continue to import Russian oil via pipeline.

The uneven implementation of Europe’s most powerful sanctions tool is an eyesore. It will also result in a higher energy bill for already strained consumers. The EU has been importing between 3 and 3.7 million barrels of Russian Urals oil per day, says Rystad Energy. Replacing 75% of that with $120-a-barrel Brent would imply an extra cost of at least $2 billion a month.

Yet the embargo is still significant. Russian exports of crude oil and condensate amounted to $110 billion, more than a fifth of Moscow’s entire commodity export proceeds in 2021. Even though oil can be more easily shipped elsewhere than gas, Russia will struggle to fully replace those lost EU exports. India has been buying record amounts of discounted Russian crude, but is already running its refineries above their official capacity, RBC analysts say. China has yet to ramp up imports, but its economy is less buoyant following extensive Covid lockdowns. And the EU embargo will discourage non-Russian tankers from transporting Moscow’s crude.

Russia could earn at least $8.1 billion per month by exporting 3 million barrels per day to the EU at current Urals crude prices. Rystad analysts say Moscow may be able to reroute at best 1 million of the barrels previously destined for the EU, implying that exports of 3 million barrels will quickly shrink to just 1.75 million barrels. That means lost revenue of at least $3.4 billion per month in the initial phase of the embargo, or just over 40% of Moscow’s estimated monthly proceeds from EU exports, Breakingviews calculations show. That loss could rise to at least $4.5 billion a month once the full EU ban kicks in. The EU oil embargo will hurt Russia more than Europe.

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(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)


European Union leaders have agreed in principle to immediately cut 75% of oil imports from Russia, European Council President Charles Michel said in a tweet on May 31.

The agreement, which is expected to be formally endorsed by the 27 EU leaders at the end of a two-day summit later on May 31, envisages banning 90% of Russian oil imports by the end of the year.

Some 10% of imports will be temporarily exempt from the EU embargo to help landlocked countries Hungary, Slovakia and the Czech Republic. These countries import Russian oil via pipeline and cannot easily replace it.

Editing by Neil Unmack, Streisand Neto and Oliver Taslic

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