Europe faces pressure to join US, UK ban on Russian oil
BRUSSELS (AP) — Europe faces a stark choice: Is it worth having a recession to choke off oil and gas money flowing to Russia while it wages war in Ukraine?
While US and UK bans on Russian oil increase pressure on Europe to follow suit, the continent’s energy dependence on Russia makes an immediate embargo much more difficult. Yet some officials say it’s the only way to stop pouring billions in oil and gas revenues into President Vladimir Putin’s coffers, despite the virtual certainty of a record-low inflation.
Europe gets about 40% of its natural gas and 25% of its oil from Russia, while the United States gets meager amounts of oil and no natural gas. An EU boycott would mean higher prices at the pump and on utility bills, and ultimately the threat of an energy crisis and recession as the economy still recovers from the coronavirus pandemic.
Prices for everything from food to electricity are already very high, in part due to soaring natural gas prices in Europe. Governments introduced subsidies to offset high utility bills, while gasoline topped 2.01 euros per litre, the equivalent of $8.33 per gallon, meaning that filling up of a compact car could cost 90 euros (98 dollars).
These costs are already reducing consumer spending, with inflation at a record high of 5.8%. The question is: how much more can the Europeans suffer trying to stop Putin’s attack on Ukraine?
“The consequences for the European economy would be major,” said Simone Tagliapietra, an energy policy expert at the Bruegel think tank in Brussels. “And therefore, it would take a clear, clear political decision that we’re willing to jeopardize our economy, we’re willing to afford a recession, in order to hit Putin where it hurts.”
US President Joe Biden acknowledged this when he announced the US ban on Russian oil imports, saying “many of our European allies and partners will not be able to join us”.
Efforts to agree on a boycott could be complicated because some EU member countries are much more dependent than others on Russia. Germany and Italy are heavily dependent on Russian natural gas. Poland gets 67% of its oil from Russia, while Ireland gets only 5%.
“It will be divisive in Europe because part of Europe is likely to suffer more,” said David Elmes, head of the global energy research group at the University of Warwick’s business school. “So this is going to put the European political system, the European agreements and the European project…under enormous stress.”
The European Commission, the executive arm of the EU, announced on Tuesday a plan to wean the bloc off two-thirds of Russian natural gas by the end of the year, including buying more liquefied natural gas brought in by ship and by developing renewable energies more rapidly.
It will already be a huge challenge, said Dutch Prime Minister Mark Rutte, because “we are very dependent, that’s the sad reality”.
The EU target “is an enormous task to achieve it. I’m not sure we can achieve this, but we have to do everything in our power to make it happen,” he said on Wednesday.
With the world already facing an energy crisis and oil prices soaring to $120 a barrel – from $76 at the end of last year – a European boycott would send prices and inflation “to the moon “, said Tagliapietra of the think tank Bruegel. And not just for Europe, but also for energy-consuming countries around the world.
“The price effect is what needs to be considered here, because that’s what could push the global economy into recession,” he said.
Yet the escalating conflict, the flow of refugees and the heartbreaking images of suffering keep the issue on the table.
There is “considerable pressure both from allies and from the country – the public would probably support this kind of decision as long as it did not mean too high prices”, said Caroline Bain, chief commodities economist. at Capital Economics in an online briefing. Tuesday.
Bain expected European countries to take a “more measured approach” rather than a complete ban on Russian energy and “seek ways to significantly reduce their reliance on Russian energy.”
Oil, which comes mainly from tankers, would be easier to replace with other suppliers than natural gas, which comes mainly from fixed pipelines from Russia.
European refineries that turn crude into gasoline are designed for the denser Russian oil and would struggle to switch to other types of oil. Russia supplies 14% of the diesel fuel used in Europe for trucks and many cars, according to analysts at S&P Global Platts, meaning a disruption would “dramatically tighten the market”.
Europe has made it through most of the heating season, but would face a daunting challenge to fill its natural gas reserves in time for next winter.
The continent could replace all but 10-15% of Russian gas, requiring forced rationing that would hit industrial users first, Bruegel energy analysts say.
Despite the potential fallout, the debate over a ban is ongoing. German Economy Minister Robert Habeck on Tuesday defended the decision to exempt Russian energy from sanctions and noted that US officials had said they would “not ask or ask” Europe’s biggest economy to join an oil embargo.
But some German lawmakers support it.
Boycotting Russian energy would be “a difficult, but possible and therefore necessary decision” that “would hit the decisive lifeline of Putin’s regime”, said Norbert Roettgen, member of the German parliament’s foreign relations committee for the conservative Democrats. – opposition Christians. .
Dominik Tarczynski, Member of the European Parliament from the populist Law and Justice Party of Poland, put it this way: “The ban on Netflix is a joke, because people are dying, so we need a ban on oil and Russian gas now. ”