The EU wants to close Sixth package of sanctions against Russia with a gradual oil embargo. But the gradual withdrawal from Russian oil gives Russia time to make up for the losses.
After the announcement by Ursula von der Leyen of the comprehensive package of sanctions, which includes an embargo on Russian oil, has begun a road race for its adoption. For this Unanimity is needed from all 27 EU member states. Something that is not at all a given at least at the moment. In a nutshell, the situation is as follows: While until now Germany was considered the country that was “braking” due to its close dependence on Russian energy and the size of its industry needs, now Objections are raised mainly by Hungary, Slovakia and Austria. This has been taken into account by the Commission, which is why special time arrangements have been made for the implementation of the measures.
Positive reactions but also disagreements
Despite the intense negotiations that preceded the day before yesterday’s von der Leyen announcements, Budapest suddenly raised objections, claiming that the Commission’s plan did not provide guarantees for its energy security. Of course, Prime Minister Orban, who is considered a friend of Putin, made it clear that his stance should not be seen as “political resistance” to the oil embargo. Whether this is the case, and whether the Hungarian prime ministers want more concessions from Brussels, remains to be seen in the coming days. At the moment, COREPER, the permanent representatives of the 27, are stuck in their papers and are trying to find the golden section that will lead to unanimity. And this is expected at the end of the week at best.
The first reactions in the European Parliament were generally positive. Most MEPs have stressed the need for the EU to salvage its credibility with Putin, even if the price is too high. There were even MEPs who argued that the sanctions package was coming too late, such as Beata Sindlo from the Polish ruling PiS party. “Decisions must be implemented by all,” he said, looking at the exceptions provided for Hungary in particular.
But there is a fundamental question: Is the phasing out of Russian oil exports really affecting Putin’s economy and war machine the way the Europeans want? Rstad Energy estimates that despite the expected cuts in Russian oil production this year, the rise in oil prices will lead to an increase in Russia’s revenues to $ 180 billion. This is almost half more than last year, although production has dropped by 1.6 billion barrels since the beginning of the war.
“In this first phase of sanctions and the embargo, Russia will benefit from the price increase compared to previous years,” said analyst Daria Melnik. But in the medium term, production and revenue will decline, as reorienting it to Asia will take time and massive investment in infrastructure. Crude oil production will only recover from mid-2023, at least according to industry experts. The Financial Times writes in its main article that it will be difficult to implement the oil embargo without raising prices to a point that will “throw” the world economy.
Economists doubt
At the moment there is not much free oil available on the world market and it is not certain whether OPEC and major producers, such as Saudi Arabia, are willing to replace the shortages of Russian oil. Only the announcement of an impending oil embargo in the EU led to a 30% rise in price yesterday. But economic experts at the Bruegel think tank also question the usefulness of a phased embargo. Gidram Wolf and Simone Taliapietra point out that the expected rise in prices could offset the losses from the gradual decline in oil exports. Moscow could use this short-term effect on its citizens, because about half of the state budget is financed by energy exports. According to economists, only a direct and complete energy embargo would have a strong effect. The gradual exit gives Russia time to reorient its oil exports. Penalties would be better, because they could be more easily adapted to political developments. Invoices could be paid into frozen special purpose accounts and used for the reconstruction of Ukraine.
In a statement, Greenpeace points out that the slow exit gives Russia a lot of time. But environmentalists are calling for more energy savings instead of looking for new energy producers. A goal that the Association of German Mechanical and Installation Engineers VDMA shares in a rare demonstration of unity. The momentum from the crisis must be used to rapidly promote renewable energy sources and energy efficiency. But machine builders also see the gradual embargo as “not ambitious enough”. However, although the industry is affected, the VDMA sees no alternative to toughening sanctions “in relation to Russia’s aggressive and inhumane behavior.”
Barbara Wesel
Edited by: Irini Anastassopoulou
DW
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