EXPLAINER: What is the impact if Europe cuts Russian oil?

Gas and oil have continued to flow even as governments denounce war. The EU sends Russia $450 million a day for oil and $400 million a day for natural gas, according to calculations by analysts at the Bruegel think tank in Brussels.

This means energy revenues are bolstering the Kremlin’s budget, adding to foreign currency reserves that could help Russia prop up the ruble and partially offset Western sanctions that have frozen much of Russia’s foreign currency reserves held in outside of Russia.


Europe is the biggest buyer of Russian crude, receiving 138 million tonnes in 2020 out of Russia’s total exports of 260 million tonnes – or 53%, according to the BP Statistical Review of World Energy. Europe, which imports almost all of its crude oil, receives a quarter of its needs from Russia.

Petroleum is refined into fuel for heating and driving as well as a raw material for industry.


It is more difficult to find other sources of natural gas because it comes mainly from pipelines. It would be easier to find other sources of oil, which mainly moves by tanker and is traded globally. A boycott of natural gas is therefore not an option for the moment. Big gas users like Germany say an immediate cut could cost jobs, with industry associations warning of shutdowns at glass and metals companies.

Cutting off both natural gas and oil would likely lead to a recession in Europe, economists say.


Europe imported 3.8 million barrels a day from Russia before the war. In theory, European customers could replace those barrels with suppliers in the Middle East, whose exports are now mainly destined for Asia, as well as the United States, Latin America and Africa. Meanwhile, cheaper Russian oil could replace shipments from the Middle East to Asia.

But it would take time to make that adjustment. New supplies would have to be found elsewhere. Several major refineries in central and eastern Europe rely on oil from a Soviet-era pipeline and would need to find another way to get oil to make gasoline and other products.

Bruegel analysts say this means European countries should be prepared to impose measures to reduce fuel consumption, such as making public transport free and encouraging carpooling. If these measures do not work, stricter measures such as even and odd driving bans based on license plate numbers would be needed. Similar measures were taken during the 1973 OPEC oil embargo, when Germany imposed car-free Sundays.

Russia is one of the main European suppliers of diesel fuel for trucks and agricultural equipment, which means that its price affects those of a wide range of foods and goods.


Chances are oil prices will go up for everyone because oil is a global commodity. This would mean higher prices at the pump and for home heating, less disposable income for consumers, and delay economic recovery from the COVID-19 pandemic.

Russia would probably produce and export less oil after losing its biggest customer, Europe. Indeed, not all Russian exports can simply be redirected from neighboring Europe to distant Asia due to maritime and logistical constraints. This would mean a major reshuffle in global crude oil flows.

Buyers in India and China could avoid Russian oil if it means potential sanctions issues with the West. And Western customers are already shunning Russian oil because they don’t want to be associated with the country or can’t find insurers or banks willing to deal with Moscow.

On the other hand, some Asian customers might jump at the chance to buy Russian oil at a discount. Especially if the sales are off the books, as seems to be happening in some cases.

The Saudi-led OPEC oil cartel – which sets production levels with non-member allies like Russia – has made it clear that it will not increase production to make up for any loss of supply from the Russia due to a boycott. They meet on Thursday.

Rystad Energy expects a loss of 1.5 to 2 million barrels per day and oil reaching $120 to $130 a barrel by the end of the year.

A milder scenario, in which most of the Russian oil shunned by Europe would be recovered in other energy-guzzling countries not participating in the sanctions, would lead to a loss of 1 million barrels per day. Oil prices would fall below $100 by June and continue to fall to $60 by the end of the year.


It would cost the Kremlin, whose energy is the main pillar of its budget. The Russian government derived an average of 43% of its revenue from oil and natural gas between 2011 and 2020.

And yet it is not that simple.

The price of Russia’s main export benchmark to Europe, Urals crude, has been lowered to $35 a barrel compared to the international benchmark Brent.

But due to generally higher oil prices, Russia’s revenue losses have so far been limited. These foreign exchange gains help support Russian finances despite the sanctions.

“The progressive EU embargo on Russian oil is a risky bet, because in the short term it could leave Russian incomes high while implying negative consequences for the EU and the world economy in terms of higher prices. high,” said energy policy expert Simone Tagliapietra. to Bruegel.

That aside from fears that an oil boycott could prompt Russia to cut gas supplies in retaliation.

Mary I. Bruner