EXPLAINER: Effects of EU Russia oil ban, Moscow’s response

Jun 1, 2022, 7:22 AM | Updated: 8:09 am
European Council President Charles Michel, on a screen, speaks during a news conference after the s...

European Council President Charles Michel, on a screen, speaks during a news conference after the second day's session of an extraordinary meeting of EU leaders to discuss Ukraine, energy and food security at the Europa building in Brussels, Tuesday, May 31, 2022. (AP Photo/Olivier Matthys)

(AP Photo/Olivier Matthys)

THE HAGUE, Netherlands (AP) — The European Union has agreed to slash Russian oil imports in a tough escalation of the bloc’s campaign of sanctions to punish Moscow for its invasion of Ukraine. It’s a landmark decision that will hit Russian coffers in the long term, but could also hurt consumers across the European continent.

The move agreed late Monday at an EU leaders’ summit in Brussels comes amid soaring energy prices in Europe and could spark more rises, particularly later this year as nations compete for natural gas supplies to heat homes and fire industries, analysts say.

Just hours before U.S. markets opened Wednesday, benchmark U.S. crude had climbed $1.25 to $115.92 per barrel in electronic trading on the New York Mercantile Exchange.

Analysts say that amid high oil prices, the sanctions are unlikely to hit Russia hard soon, but they deprive Moscow of one of its most important customers for oil — likely for a long time to come.

WHAT HAS THE EU DONE?

European Union leaders agreed to cut Russian oil imports by about 90% over the next six months, a dramatic move that was considered unthinkable just months ago. The 27-country bloc relies on Russia for 25% of its oil.

The ban applies to all Russian oil delivered by sea. It contains a temporary exemption for oil delivered by the Russian Druzhba pipeline to certain landlocked countries in Central Europe. Germany and Poland have agreed to stop using oil from the northern branch of the pipeline.

Russian oil delivered by sea accounts for two-thirds of the EU’s oil imports from Moscow.

WHAT ABOUT GAS?

Russia has the world’s largest natural gas reserves and is the biggest global exporter, according to the International Energy Agency.

But don’t expect the 27-nation bloc’s leaders to sign off on a ban on Russian gas imports any time soon. The bloc imports 40% of its gas — used for everything from generating electricity to heating homes — from Russia, and finding alternative supplies is tougher than for oil.

“Russian oil is much easier to compensate … gas is completely different, which is why a gas embargo will not be an issue in the next sanctions package,” said Austria’s Chancellor Karl Nehammer.

That doesn’t mean gas is immune from the geopolitical tensions. Russia is flexing its economic muscle and retaliating to other sanctions by cutting off or restricting gas supplies to some European nations.

Russian state energy giant Gazprom said this week it is halting the flow of gas to Dutch trader GasTerra and Denmark’s Oersted company and is also stopping shipments to Shell Energy Europe that were bound for Germany. Germany has other suppliers, and GasTerra and Oersted said they were prepared for a shutoff. Gazprom previously stopped the flow to Bulgaria, Poland and Finland.

“Who’s next?” said Lucia van Geuns, an energy expert from The Hague Centre for Security Studies. She said the tightening of the net by Moscow could leave EU countries competing for gas supplies from other sources to fill up storage facilities over the summer and to use next winter — a move that would likely drive up prices even further.

WHAT DOES IT MEAN FOR CONSUMERS?

In short: Higher prices. Amid concerns about the devastating war in Ukraine and moves to punish Russia invading its neighbor, energy bills and gasoline prices have been high for months and governments have been cutting taxes in a bid to spare their citizens.

Even so, energy consumers — that’s basically everybody who flicks a light switch, takes a shower, looks at their phone screen or fills their car’s fuel tank — are feeling the pinch and looking for ways to cut costs where they can.

As oil prices rose again Wednesday, motorists in the eastern Netherlands were crossing the border in droves to refuel in neighboring Germany, where government tax cuts have made a liter of gasoline much cheaper than in the Netherlands. Dutch broadcaster NOS showed lines of cars with Dutch license plates waiting outside German gasoline sellers.

WHAT DOES IT MEAN FOR RUSSIA?

Moscow is waging a hugely expensive war in Ukraine. Oil and gas exports go a long way to footing the bill. Last year they accounted for 45% of the federal budget, the International Energy Agency says.

Europe is Russia’s main energy customer, and once the 27 countries have stopped using its supplies, they may not go back.

Short term, the oil ban will likely not hurt Russia too much amid high oil prices that mean Moscow can sell at a discount to clients in Asia and still make a profit, said Chris Weafer, CEO at Macro-Advisory Ltd., a consulting firm. “The financial pain for Russia probably will come more next year or over the next couple of years if it still has to offer discounts,” Weafer told the AP.

Van Geuns said Moscow’s decision to cut off gas to European customers also will likely hurt Russia in the long term “because they are going to lose a large client and of course Europe is their biggest client as far as gas is concerned.”

WILL THIS HASTEN TRANSITION TO RENEWABLE SOURCES?

In the long term, probably, but in the short term it could actually have the opposite effect. Some lawmakers in the Netherlands have already voiced support for cranking up output from the country’s remaining coal-fired power stations, which are being phased out in an attempt to rein in carbon emissions, so that consumption by gas-fired power stations can be reduced.

Mads Flarup Christensen, secretary-general of Greenpeace Norden, urged the EU to mitigate the effects of the oil sanctions by using less oil.

“If the ban is to have the maximum effect on Putin’s war and on the climate crisis, then there must be immediate reductions in our oil consumption,” Christensen said. “It will require changes in the way we transport ourselves, such as a ban on short-haul routes, lower motorway speeds and cheaper public transport.”

___

Follow AP’s coverage of the Ukraine war at https://apnews.com/hub/russia-ukraine

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EXPLAINER: Effects of EU Russia oil ban, Moscow’s response