The EU sanctions on Russia's oil exports, which were intended to cripple the Russian economy, have instead boosted oil prices by raising supply pressure on the market, bolstering the country's oil profits as Europe struggles to source their imports from alternative energy suppliers.
Earlier this month, EU leaders agreed on the 6th sanctions package which calls for a 90 percent reduction in Russian oil imports by the end of 2022.
The plan also includes phasing out Russian crude oil supplies in six months and the supply of refined products by the end of the year.
The EU states agreed to ban seaborne oil transport, partially exempting pipeline oil as some member countries including Hungary opposed particularly to the oil import ban via the Druzhba pipeline which transports Russian oil to the refineries in Poland, Germany, Hungary, Slovakia and the Czech Republic.
Although the EU which imports around 25% of its oil from Russia aimed to crash the Russian economy using the oil embargoes, the recent data shows that the bloc has so far failed to achieve it.
According to the International Energy Agency (IEA), Russia's oil revenue has increased by 50% since the beginning of the year to $20 billion a month, with the EU accounting for the lion's share of its exports.
Despite the sanctions currently in place, the IEA said overall Russian oil exports increased by 620,000 bpd in April, rebounding to the January-February average of 8.1 million bpd.
Amos Hochstein, the US energy security envoy, told the Senate Subcommittee on Europe and Regional Security Cooperation that Russia may be getting more revenue from its fossil fuels now than it did shortly before its invasion of Ukraine, as global oil price increases offset the impact of Western efforts to restrict Russian sales.
- Oil embargo creates opposite effect in short term
Brenda Shaffer, a professor at the US Naval Post-Graduate School, pointed to the differences between the markets of crude oil and natural gas and said the supplies that Europe rejected to import would be picked up by other consumers.
Noting that the Russian oil imports in India and China had already started to increase, Shaffer said the sanctions which are intended to hurt Russia appear to have boomeranged on the West and have ended up hurting the European national economies.
“In fact, we're in a situation today, we've set up the international economy now in a way where China gets discounted oil from Iran and Russia while the West is paying a much higher price for oil. So this, in the sense, is a huge economic advantage to China over the West and in this kind of situation where they can access discounted oil,” Shaffer said.
However, Matthew Bryza, former US ambassador to Baku said “the Russian economy is going to be damaged and that's the goal, making it economically infeasible or not possible for Russia to invade another neighboring country. It will take some time for that to happen, but that will happen.”
Highlighting that the crude oil can be transported easily and thus “the market will find different outlets for this”, Shaffer pointed to the increasing demand for light Azerbaijan oil due to its strategic location in the Mediterranean area “where it is exported from the Turkish port of Ceyhan.”
With the EU and the US not buying Russian oil, she said the oil prices have seen upward pressure and “this creates some higher pressure on the market”.
“Russia might end up not actually losing a lot of revenue because yes, it will be selling less oil, but on the other hand will be sold at a higher price. But, eventually, these high commodity prices, high oil prices, high gas, high coal, high metals, high food prices, high grain prices, fertilizer, eventually this will trigger a recession,” she said.
“We have already seen it in many countries, in Germany, in the UK, maybe already starting in the US,” Shaffer said, warning that the market response to these high oil prices would be a recession which always destroys the demand and then brings down the prices.
“So, oil will go down but not for a good reason,” she said.
Bryza, for his part, explained that if Russian oil is slashed from the market, oil prices would keep their upward tendency.
“But, if some Russian oil continues to go to the market and for a lower price, we'll see oil prices stabilize and maybe go down,” Bryza noted.
He went on to note that the price movements depend on so many factors, including how much Russian oil is taken out of the market due to the sanctions and said “we don't know that yet.”
- Sanctions against Russian oil 'political'
Bryza said the EU decision to ban Russian fossil fuels is mostly for “political reasons”.
He said, regardless of the economic impact on Russia, the EU felt like “it absolutely had to impose an embargo because it's from the European perspective immoral even to be delivering so much money, so much revenue to Russia in the midst of this invasion.”
Bryza believes that the EU sanctions would slash some of the Russian oil exports as “there are a lot of companies around the world that don't want to buy it and that's what I was saying some of it will still be bought but it will be bought at a lower price.”
There may also be secondary sanctions eventually, Bryza said, which means sanctions on companies which continue to buy Russian oil or help it to be exported.
“But how much Russian oil will still get to the market remains to be seen. Russia will fight to get as much as it can to the market and the Europeans will try to keep Russian oil out of the market,” he said.
By Firdevs Yuksel and Sibel Morrow
Anadolu Agency
energy@aa.com.tr