EXPLAINER: Effects of EU oil ban in Russia, response from Moscow

THE HAGUE, Netherlands — The European Union has agreed to cut Russian oil imports in a harsh escalation of the bloc’s sanctions campaign to punish Moscow for its invasion of Ukraine. It’s a historic move that will hit Russian coffers in the long run, but could also harm consumers across the European continent.

The decision agreed Monday evening at a summit of EU leaders in Brussels comes amid soaring energy prices in Europe and could trigger further hikes, particularly later this year as nations are vying for the supply of natural gas to heat homes and burn down industries, analysts say.

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

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

WHAT HAS THE EU DONE?

European Union leaders have agreed to cut Russian oil imports by around 90% over the next six months, a dramatic move that was considered unthinkable just months ago. The bloc of 27 countries depends 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 through Russia’s 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 EU oil imports from Moscow.

WHAT ABOUT GAS?

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

But don’t expect the leaders of the 27-nation bloc to sign a ban on Russian gas imports anytime soon. The bloc imports 40% of its gas – used for everything from power generation to heating homes – from Russia, and finding alternative supplies is more difficult than for oil.

“Russian oil is much easier to offset… gas is completely different, so a gas embargo will not be an issue in the next sanctions package,” Austrian Chancellor Karl Nehammer said.

This does not mean that gas is immune to geopolitical tensions. Russia is flexing its economic muscle and responding to further sanctions by cutting off or restricting gas supplies to some European countries.

Russian energy giant Gazprom said this week it was cutting gas supplies from Dutch trader GasTerra and Danish company Oersted and also halting shipments to Shell Energy Europe bound for Germany. Germany has other suppliers, and GasTerra and Oersted have said they are ready for a shutdown. Gazprom previously stopped the flow to Bulgaria, Poland and Finland.

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

WHAT DOES THIS MEAN FOR CONSUMERS?

In short: higher prices. Amid concerns over the devastating war in Ukraine and moves to punish Russia for invading its neighbour, energy bills and gasoline prices have been high for months and governments have cut taxes across the country. purpose of sparing their citizens.

Even so, power consumers – which is basically anyone who flips a switch, takes a shower, stares at their phone screen, or fills up their car’s gas tank – feel the pinch and are looking for ways to cut costs where they can.

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

WHAT DOES THIS MEAN FOR RUSSIA?

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

Europe is Russia’s biggest energy customer, and once the 27 countries stop using its supplies, there’s no going back.

In the short term, the oil ban is unlikely to hurt Russia too much amid high oil prices, which means Moscow can sell at a discount to customers in Asia and still make a profit, Chris Weafer said. , CEO of Macro-Advisory Ltd., an advisory company. . “The financial pain for Russia will probably come more next year or in the next couple of years if they still have to offer rebates,” Weafer told the AP.

Van Geuns said Moscow’s decision to cut off gas to European customers will likely hurt Russia in the long run “because they’re going to lose a big customer and of course Europe is their biggest customer when it comes to gas.” .

WILL THIS ACCELERATE THE TRANSITION TOWARDS RENEWABLE SOURCES?

In the long term, probably, but in the short term, it might actually have the opposite effect. Some lawmakers in the Netherlands have already expressed support for increasing production from the country’s remaining coal-fired power plants, which are being phased out in a bid to limit carbon emissions, so that gas-fired power plant consumption can be reduced.

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

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

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

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