Page 6 - FSUOGM Week 14 2022

FSUOGM COMMENTARY FSUOGM

An energy embargo on

Russia would hurt Europe

as much as Russia

Europe may be shooting itself in the foot with an energy embargo

EUROPE THE West is threatening to impose an energy receipts (at a Urals price of $80 per barrel) and
embargo on Russia. The EU has a plan to cut around $145bn in natural gas receipts (at a price
hydrocarbon imports from Russia to zero as of $25/mmBtu). An embargo on coal exports,
soon as 2025 or maybe sooner if Russia scales which has also been discussed, would be less
up its attack on Ukraine. What effect would that impactful at around $15bn.”
have on the Russian economy? Following a western ban Russia would try
The Institute of International Finance (IIF) to redirect its oil, gas and coal to other markets,
has forecast that Russia’s economy would decline such as India and China, but the volumes are so
by 15% this year and another 3% next year under much bigger that these markets would struggle
the existing extreme sanctions regime, but the to absorb the whole amount and what could be
contraction could be even worse if Europe halted sold would be done at a deep discount. And in
all energy imports from its large neighbour to the case of gas Russia would not be able to sell
the east. any to other markets, as gas has to travel through
“The current crisis will wipe out fifteen years pipelines and currently there are no pipelines
of economic development. Nonetheless, risks are connecting its giant Yamal gas reserves to Asia.
clearly to the downside, with the war in Ukraine Despite the threat of an embargo on Russian
entering its second month and no resolution of hydrocarbons, European countries are reluctant
the conflict in sight. Thus, additional sanctions, to carry through on the threat, as it is next to
including potentially an embargo on Russian oil impossible to replace Russian gas quickly with
and natural gas exports, become more likely as alternative energy supplies. Russia currently
time passes and evidence of attacks on civilians accounts for some 40% of Europe’s gas imports.
in Ukraine emerges,” Benjamin Hilgenstock Liquefied natural gas (LNG) is the obvious alter-
and Elina Ribakova, economists at IIF, wrote in native source of gas because this young industry
a paper on March 30. doesn't produce enough to replace the 155bn
Russia’s exports of crude oil and petroleum cubic metres of gas Europe imported from Rus-
products, natural gas and coal are all in the EU’s sia last year. The US has said it could send an
crosshairs. Together they bring in significant extra 15 bcm to Europe, but that amount would
amounts of money to the Russian budget. do little more than replace the LNG Russia
The US has already banned imports of Rus- also sends to Europe; Russia is also the biggest
sian oil and the UK is slated to phase out the same exporter of LNG to Europe.
imports by the end of this year. However, energy “Political considerations aside, quickly
analysts interviewed by bne IntelliNews believe replacing Russian oil and natural gas imports
these bans are largely symbolic. Russia makes up would certainly be an extremely difficult under-
a very small share of US and UK imports, and taking for Europe,” IIF said.
they are easily redirected elsewhere and so the The share of Russia’s oil and gas in the energy
ban will make no difference to Russia’s revenue mix for each of the EU member’s states is very
stream. However, the EU is a far larger market different. The UK still produces its own gas and
and if it turns off the spigots that will cause Rus- so barely imports any Russian gas, but it is the
sia a real headache. most heavily dependent on Russian oil imports
“The EU, UK and the US account for close from the European countries. On the flip side
to 55% of Russia’s oil and petroleum prod- Czechia buys a low amount of Russian oil but it
uct exports and more than 60% of natural gas is entirely dependent on Russian gas to fuel its
exports, both in volume terms,” Hilgenstock and economy.
Ribakova said. “We estimate that a total embargo For countries like Czechia, Hungary, Slova-
by the three economies would lead to a loss of kia, Romania, Germany and Poland, all of which
roughly $120bn in oil and petroleum product import more than half their gas from Russia, it

P6 www. NEWSBASE .com Week 14 06•April•2022