According to the Bruegel think tank, banning Russian oil imports could be a difficult task. In November 2021, Russia accounted for almost 30% of EU crude oil imports and just over 15% of oil imports.
In the event of an interruption in Russian supply, the EU would be vulnerable to the supply of diesel, oil and fuel oil. And an immediate ban on Russian oil imports will cause an estimated shock of about 3 million barrels of oil per day and about 1 million barrels of oil per day. And while OPEC may have the capacity to make up for that loss, there is an agreement with Russia under OPEC + that limits production growth to just 400,000 barrels a month.
“There are other obstacles. Most European refineries are built for Russian crude oil and will be less efficient when using other types of crude oil. According to Bruegel, six large refineries along the Druzhba pipeline (in Poland, Germany, the Czech Republic, Austria, Hungary and Slovakia) are particularly vulnerable. Russia’s oil pipelines are built to flow from east to west. Changing the flow may require the use of alternative means of transport, including trucks, trains and barges. Another problem comes from replacing Russia’s fuel refining capacity. European refineries could do this, but their usability would reach over 90%, the highest in this century, ”says the eToro analyst.
In 2018, the AIE published a study on “how to save oil quickly”. Some measures are well known to the Romanian public who lived in the 1980s. One of them, having the biggest impact in reducing oil consumption is a traffic system based on even and odd license plates, cars coming out in alternative traffic, one day yes and another no. Another measure is to ban cars every ten days. There are also measures to make better use of ridesharing and free public transport.
Lately, we are seeing governments encourage their citizens to reduce their gas consumption. The Dutch government has launched a campaign urging people to reduce the use of central heating and take shorter showers to save energy. Italian Prime Minister Draghi said in an interview with Corriere della Sera that Europe could reduce Russian gas imports faster than before, with a 1-2 degree drop in heating temperatures and a similar impact on air conditioning. .
Although all these statements make the problem seem a bit simple, the reality is more complex. The EU is heavily dependent on Russian gas, importing 155 billion cubic meters in 2021, and Russian gas pipelines accounted for a third of the foreign supply market. But Russia’s deliveries fell by 39%, leaving European gas stocks 17% below their average for the past five years, right at the start of the heat season.
Europe has managed to get through the winter with marginally increased domestic production and imports of LNG – liquefied natural gas – which have increased by 146% compared to 2021. Europe’s quest to diversify its natural gas supply has increased demand for LNG cargo ships. Thus, the average spot prices of LNG in Asia in the heating season 2021-2022 have been more than four times higher than their average over the last five years. And despite a mild winter in Europe, spot LNG prices were five times higher than average. The AIE expects natural gas consumption to fall by almost 6% in Europe this year.
In the context of warming weather and declining consumption expectations, TTF futures prices for Dutch gas have already fallen below EUR 100 per MW, but analysts expect them to remain high throughout 2022. There are growing concerns that, as Russian gas is phased out, LNG capacity will be exceeded by demand starting in 2025 and beyond.
The wider economic impact of Russia’s invasion of Ukraine, including rising commodity prices, declining purchasing power and declining investment due to declining business confidence, is expected to affect European and global economic growth. IMF has reduced global growth expectations from 4.4% to 3.6% in both 2022 and 2023. For Romania, GDP growth has been reduced to 2.2% in 2022, from 4.8% % previous.
In Germany, the negative effects of the Ukrainian conflict are already visible in the economy. The number of applications for normal corporate insolvency increased by 27% in March 2022 compared to February 2022. This comes after another increase of 4.2% in February. And, usually due to economic dependencies, the effects observed in Germany reach Romania with some delay. Last year, Romania exported goods worth more than 18 billion euros to Germany, making it its main trading partner, according to Eurostat.
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