EU Energy Security in Danger Following Russian Oil Ban

After the European Union has imposed a phased ban on Russian oil imports as part of its sweeping sanctions over Moscow’s invasion of Ukraine, the bloc could have a hard time replacing the fossil fuel as most of its supply comes from Russia.

The EU imported 2.2 million barrels per day (bpd) of crude and 1.2 million bpd of refined oil products from Russia before the war broke out in Ukraine.

As Europe not only imports crude oil from Russia but refined oil products as well, European consumers will have to pay more for gasoline and diesel. Importing diesel from further away suppliers will increase freight costs and thus prices at filling stations. For example, 74% of Germany’s diesel imports came from Russia before the war.

Furthermore, a fifth of oil refined in Europe comes from Russia. Many refineries in Germany, Hungary, Slovakia, Czech Republic and Poland get crude oil from Russia via the Druzhba pipeline.

In recent year, supplies via Druzhba have fluctuated sharply with deliveries running as high as 1.5 million bpd while declining in recent months including February to around 0.8 million bpd.

While both Polish and German refineries may switch to seaborne supplies from Saudi Arabia or Norway, it will not be enough for them to run at full capacity.

Changing these supply routes will most likely mean higher feedstock prices for Germany’s biggest refineries, feeding into higher prices for end consumers.

For landlocked countries, the task to replace Druzhba oil will be even harder. It is likely to involve more expensive and less efficient transport via trucks, railways, rivers or the future extension of other pipelines such as TAL going from the Mediterranean via Austria to Germany.

Slovakia, Bulgaria and the Czech Republic have asked some exemptions from an imminent ban to have more time to look for alternatives, while Hungary does not support the plan fearing for its energy security.

Another problem is that refineries typically operate on a specific type of crude oil, such as Russia’s prime export grade Urals. Other types of crude from Norway, the Middle East, the United States or West Africa can be blended or the refineries revamped, but this can change the yield of a refinery and cost more money in addition to higher freight costs.

If the Russian oil is phased out, its traditional consumers will not only have to fight for supplies among themselves but with existing customers in Asia as well.

As pandemic lockdowns have come to an end, refining margins have skyrocketed and they will try to supply as much as fuel as possible.

Countries and refiners typically also have storage tanks which they can tap in case of short-term disruptions.

EU countries have until the end of the year to prepare for the disruption and would likely fill storage in areas near refineries that might struggle. It would cause more severe disruptions if Russia cuts supplies first. Germany has warned of a recession without Russian oil and gas.

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