First, the flaws. Monday’s deal is embarrassingly late. Europe has for months expressed outrage at the actions of Kremlin forces while effectively allowing the conflict through heavy payments for imported Russian oil and gas. Energy and Clean Air Research Center says EU countries have paid Moscow 57 billion euros ($61 billion) for fossil fuels since the invasion – a moral and diplomatic stance untenable which Member States are only now beginning to tackle. For gas, the plan is still to reduce demand and increase non-Russian supply, which the Commission optimistically hopes will pave the way for a dramatic reduction in imports this year and eventual independence.
More troubling, after impressive early displays of unity and speed, the unseemly haggling that preceded this deal has revealed rifts in Europe that will only embolden Moscow. The talks ended with major concessions to Hungarian Viktor Orban, who was able to block a deal for weeks and put his interests ahead of collective security – a troubling precedent. As a result, the sanctions will only include oil delivered by sea, with “a temporary exception” for oil by pipeline to which leaders will return “as soon as possible”. The written statement also outlines contingency measures “to ensure security of supply,” in response to Orban’s demands that he be given options if pipeline supply is interrupted.
Other compromises will drag out some imposed measures so that they only come into force six or eight months after the adoption of the proposal. Big and bold moves, like a plan to ban the EU shipping industry from shipping Russian crude, have already been scrapped.
None of this should take away from what is still a significant achievement, almost unthinkable just a few months ago. Even an imperfect energy embargo is immediately painful for the Kremlin and is an important signal of intent. This, if the promises of Germany and Poland to wean themselves off the pipeline are kept, should cover 90% of Russian oil imports into Europe by the end of the year.
The effects on the oil markets and, in particular, oil products could be dramatic. Russia is by far the largest net exporter of petroleum products in the world (the United States, which has larger crude volumes, derives much of its exports from refining crude from other countries). European imports of Russian diesel account for around one-fifth of world trade in this product. Almost all of this will be closed in a few months. European diesel futures, which have averaged $630 per metric ton over the past decade, are currently changing hands at around double that. Inventories in the Western European oil trading hub are at levels last seen on a sustained basis in 2008, when Brent prices peaked at $146 a barrel.
A repeat is not impossible this time. Brent is already trading at $123. In the event of an embargo similar to the one we see now, it could reach $150 by July, the Oxford Institute for Energy Studies estimated earlier this month. This risks compressing Europe’s diesel-dependent heavy industry which is already struggling with high prices, while fueling inflation and boosting the appeal of electric and hybrid vehicles which now account for almost half of car sales. peculiar to the continent.
In the short term, it is possible that Europe will be affected, while Russia benefits from higher prices. The long-term picture, however, looks much more difficult for Moscow. He can’t just temporarily cut off supply without consequences, and sanctions on marine insurance will prove almost impossible to circumvent, given that specialists operate largely in Europe, the United States and allied countries. , choking off the oil trade.
Yes, the gas is missing. Russia is the biggest gas exporter and Europe is its biggest customer, and it is true that apart from abandoning the Nordstream 2 gas pipeline, Europe has been reluctant to restrict imports, which Russia would have been harder to circumvent. It may still be necessary to turn to Russia to fill the underground gas storage before winter. All problematic, no doubt.
But there are encouragements to be found here. The broader package includes other irritants, such as removing more banks, including Russia’s largest Sberbank, from the SWIFT payment system. Sanctions have an uneven track record of getting states to change their behavior — especially authoritarian governments involved in activities they perceive to be core national interests — but the goal now is clearly to isolate and gut governments. Kremlin financial sources. Despite a high rouble, backed by capital controls, and a large current account surplus, the measures imposed by Brussels, Washington and their partners are already working. The impact of restrictions on component imports has already shown the limits of Russian import substitution programs. Aeroflot PJSC may soon be forced to cannibalize planes for parts, for example.
War has always been dependent on finance. By cutting off the flow of dollars into the Kremlin’s coffers, Europe makes it all the more difficult for the Kremlin to maintain the current belligerence. Even imperfect sanctions are better than no sanctions at all.
More from Bloomberg Opinion:
• Europe will hit Russian oil: Javier Blas
• Putin’s Parades Can’t Hide a Missing Victory: Clara F. Marques
• How Russian is he? A very rude question: Julian Lee
This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.
Clara Ferreira Marques is a Bloomberg Opinion columnist and editorial board member covering foreign affairs and climate. Previously, she worked for Reuters in Hong Kong, Singapore, India, UK, Italy and Russia.
David Fickling is a Bloomberg Opinion columnist covering energy and commodities. Previously, he worked for Bloomberg News, the Wall Street Journal and the Financial Times.
More stories like this are available at bloomberg.com/opinion