The European Comission promotes a sixth package of sanctions against Russia for the invasion of Ukraine which includes a ban on importing Russian crude oil and oil products into the European Union (EU) and to transport Russian oil products in vessels controlled or insured by European companies within six to eight months. The proposal, which has yet to overcome objections from Hungary, Slovakia, Bulgaria, Czech Republic, Greece, Cyprus and Maltahas not taken into account the warnings about the serious negative impact of that measure on the European and world economy, formulated by numerous economists, including US Treasury Secretary Janet Yellen.
The plan of the European Commission will further enrich the Kremlin by rising prices, at least for the remainder of the year, and will seriously harm the European and world economy. an elevated tariff European to purchases of Russian crude oil, as different economists have proposed, would cut Kremlin revenues without destabilizing world prices of the crude. The beneficiaries of this situation are the big oil companieslike Repsol, BP Y shellwhich have doubled their profits.
To successfully meet the Russian challenge, the EU needs a strong economic expansionno one recessionand keep the social cohesionwhich is threatened by rising energy prices and the cost of living in an environment of serious inequality Y social discontent. EU economic growth already slowed in the first quarter this year and the rise in interest rates in the EU (debt, Euribor, bank loans) further complicates the picture.
Rise in the markets
The mere announcement of the plan to veto Russian oil in the EU caused on May 4 the immediate rise in benchmark Brent crude from 105 to 110 dollars a barrel. This May 6 quote above 113 dollars74% more expensive than a year ago and 24% more than days before the invasion of Ukraine.
Despite the impact that the veto on Russian crude will have, the European Commission did not accompany the measure with an economic plan to counteract its effects in the EU, as reproached the European Parliament. Nor has the cost of adapting infrastructure specialized in Russian crude oil (refineries, pipelines) in several countries been taken into account. Also surprising is the lack of measures to reduce fuel consumptionsuch as promoting the use of public transport by means of a massive subsidy that allows lowering its price.
The US Treasury Secretary has more than a month urging the EU to be cautious about the veto on Russian crude for him destabilizing effect it will have on the markets and the economy of Europe and at a global level, given the high volume of European imports and the limited increase in oil production promised by countries of the OPEC. The EU currently imports some 3.5 billion barrels a day of Russian crude oil and oil products, five times more than the US imported in 2021.
A seriously flawed plan
The economists Guntram Wolff, Georg Zachmann and Simone Tagliapietra of the thinktank European Bruegel, also warn of serious flaws in the European Commission’s plan. They underline that the world price of crude oil will rise during the transitory period before the embargo is applied (as has already happened), which will increase Russian income while severely damaging the European economy and worldwide. Bruegel indicates that the rise in prices will allow the Kremlin to more than compensate for the eventual decline in exports. Russia is also already substantially increasing its crude oil exports to other countries, such as India, Egypt Y China. The Russian government based its revenue budget on a barrel price of $44.2 in 2022.$45 in 2023 and $45.9 in 2024, much less than half the current price, leaving you room to earn high revenues despite the discount offered of 30 dollars per barrel to India.
Despite the risk of Russian retaliation with a cut off of gas supplies to Europe, without which economic activity in Europe would be destabilized, Germany and other countries, the EU continues to maintain a very low level of gas reserves. The cutoff of Russian gas supplies to Poland and Bulgaria has not accelerated the increase in national reserves. Only Portugal, Poland and Spain have a high level of reserves (88.8%, 81.4% and 62.3%, respectively), while the EU average stands at 34.9% and in Belgium it drops to 15.6%.