"Logistically difficult to solve": Why the oil embargo is becoming more and more diluted

The EU now wants to boycott Russian oil imports, but initially only imports by ship.

"Logistically difficult to solve": Why the oil embargo is becoming more and more diluted

The EU now wants to boycott Russian oil imports, but initially only imports by ship. IfW economist Klaus-Jürgen Gern explains what is behind the compromise and what effect can still be expected.

After a tough struggle, an EU oil embargo is now emerging, albeit a very limited one. According to a draft of the EU summit declaration, deliveries via pipelines should initially be excluded. This would mean that well over a third of Russian oil imports would be exempt from the embargo, as explained by Klaus-Jürgen Gern, who heads the analysis of the commodity markets and the international economic forecast at the Kiel Institute for the World Economy (IfW).

In an interview with ntv.de, he clarified that the ratio of one third by pipeline and two thirds by ship applied before the Ukraine war. "The EU is now importing around a third less oil from Russia, with deliveries by ship in particular falling significantly and being replaced by imports from other regions," explains Gern. "It is likely that their share of oil imports from Russia has fallen recently."

A complete embargo mainly blocked Hungary. The chairman of the EPP group in the EU Parliament, Manfred Weber, therefore called for an embargo if necessary without Hungary. "To be honest, I'm tired of letting Viktor Orbán dictate our speed," said the CSU politician on "ntv Frühstart". "If Hungary is not ready to give up the blockade, it must be possible to leave behind the slowest so that the rest of the EU can go ahead."

Economist Gern, on the other hand, can understand the compromise proposal. "Countries that can cap Russian imports should do so." However, the cases where refineries are heavily geared towards Russian oil and alternative connections are difficult to establish because refineries are inland and on the pipeline are logistically difficult to resolve. In addition to Hungary, these include Slovakia and the Czech Republic, which had also expressed objections to an embargo.

According to Gern, however, Hungary is exaggerating: "The Hungarians are overplaying the technical difficulties, because the Hungarian refineries are geared towards Russian oil." A conversion does not take four years, but not even half as long. There is probably a political goal behind the portrayal of Hungary: "To push up the expected compensation payments from the EU or to postpone the whole project so far that it is of no consequence for the current purpose - because perhaps the Hungarian leadership does not want to spoil things with Putin," says Gladly.

In any case, the economist has doubts about the effect of the plans: "The compromise only stipulates that we will phase out Russian imports within six to eight months," Gern clarifies. "Some things can be reorganized in that time, but the Russians can also adapt in the meantime." In his eyes, however, a hard cut would not be the solution either: "If it were faster, you would actually hurt the Russians, but you would also hurt yourself more - the balance would be very unclear." If Russian oil imports were to end quickly, prices would also rise sharply. "Because the part that the Russians couldn't sell to other countries is then missing on the world market."

"Germany and other European countries can pay these prices, but other countries are being pushed out of the market," says Gern. "That would be comparable to the situation on the grain market. The damage is borne by uninvolved countries, some of which are at the lower end of the income scale." If there are further increases in oil prices, "you may also lose political support in countries that are not convinced of the sanctions against Russia."

At the same time, the high prices meant that the Russians would earn a lot, despite the embargo. "In addition, the Russian government does not need that much income to finance itself. Before the war, the country had high budget surpluses and currently has a huge current account surplus," says Gern. "Even an embargo on shipping to Europe would not create a financing problem."

The economist fundamentally doubts the effectiveness of embargoes: Based on the experience of the past years and decades, a change in behavior through sanctions is not very likely. "It is not to be expected that the Russians will give in because of an oil embargo." In contrast, from the point of view of economists Veronika Grimm, the argument that an energy embargo would not stop the war falls short. "Europe must use foresight to prevent the war from spreading to other areas of the continent," the economist said in an interview with ntv.de.

After all, Germany and Poland, which also still receive Russian oil by pipeline, have already made it clear that they want to become independent of Russian oil by the end of the year - with or without an embargo.

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