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How does the latest oil embargo from the EU affect Russia?

The embargo would include a ban on seaborne oil but a partial waiver of pipeline shipments, a move crucial to getting Hu’s approval.Russiary – landlocked country. Accordingly, Hungary will continue to import oil from Russia through the southern branch of the Druzhba pipeline.

EU Council President Charles Michel said the deal would immediately affect more than two-thirds of oil imports from Russia. According to European Commission President Ursula von der Leyen, these sanctions will effectively cut about 90% of the total oil production that the EU imports from Russia by the end of this year.

Previously, the EU had imposed five rounds of sanctions on Russia since Moscow launched its military campaign in Ukraine. The bloc has targeted more than 1,000 individuals, including President Putin and top Russian government officials, and pro-Kremlin oligarchs, and imposed sanctions on banks and the export sector. Russian coal. This sixth package of sanctions has been delayed many times due to concerns about oil supply shortages.

The new sanctions package also includes an asset freeze and travel ban for many individuals, removing the largest Russian bank – Sberbank from the Society for Worldwide Interbank Financial Telecommunication (SWIFT). Russia’s three major state TV stations will also be banned from operating in the EU.

The new sanctions, which need the support of all 27 member states, will be legally approved on June 1, he added.

How does the ban affect the Russian economy?

Some analysts say that the new EU ban will affect Russia’s crude oil exports but may not do much damage to the Russian economy.

According to the International Energy Agency (IEA), Russia is the EU’s largest exporter of oil and oil products, supplying 2.2 million barrels of oil per day (bpd) and oil products at 1.2 million barrels per day (bpd). million barrels/day. Oil exports bring Moscow $1 billion in revenue a day. It is estimated that Russian production will decrease by another million barrels per day, or about 10%, when the restrictions come into effect.

However, Russia’s oil exports are still likely to withstand the sanctions as other countries seize the opportunity to buy crude at a discount of about $30 per barrel of Brent crude. India is one of Russia’s most potential customers, ordering more than 700,000 barrels per day in May. Commodity data analytics firm Kpler says Asia has surpassed Europe for the first time and has become a major customer. of Russian oil in April.

According to expert Alexandra Prokopenko of the Carnegie Endowment for International Peace, paradoxically, the West’s expansive sanctions aim to deprive Russia of funding for Russia’s military campaign in Ukraine. , is helping to fill Russia’s coffers. Sanctions have increased Russia’s ability to combat a drop in foreign currency earnings, as the country currently has few opportunities to spend in foreign currency. According to data from the Russian Ministry of Finance, high energy prices added 800 billion rubles to the state budget in the first two months of the military campaign. Overall, oil and gas revenue doubled in the January-April period to 4.77 trillion rubles, almost double the same period in 2021. Most of the revenue comes from taxes. mineral extraction and oil and gas export tax.

The Russian government has postponed a number of budget regulations for 2022, which require spending rather than storing all oil and gas revenues. This could help make up for lost revenues in other areas. The combination of ruble reserves and high energy prices will allow Russia to maintain social spending at current levels for at least the next year or two. Besides, Russia can still sell oil for foreign currency from buyers outside of Europe.

The opposite effect for Europe

On the contrary, some European countries will be very vulnerable to losing access to Russian oil supplies. Slovakia imports 105,000 bpd from Russia, Hungary imports 70,000 bpd and the Czech Republic imports 68,000 bpd. Other EU countries are less dependent on Russian oil, but high oil prices are one of the main causes of inflation in Europe.

If Russia stops supplying oil to Europe in the near future, the region could theoretically find an alternative supply. But that still depends a lot on OPEC’s decision whether it is willing to increase production, as well as the transportation costs and tonnage of the available tankers. The search for a replacement product can take anywhere from a few months to several years.

Of course, Russia doesn’t hold all the cards. In April, due to the effects of sanctions, Russia’s oil production fell by nearly 1 million barrels per day. Stopping oil exports to Europe will cause the country to reduce production, close oil wells and increase transportation costs when it has to redirect exports to other regions.

Analysts say that, when the Russian oil embargo is introduced, the economic damage to Russia and Europe will depend on whether the ban is implemented sooner or later, for how long and reacts. What is the response of OPEC countries? European politicians will face many pressing tasks at once: finding alternative suppliers, explaining to voters about price spikes and minimizing the impact on sub-EU countries heavily dependent on Russian oil resources. In addition, an energy war between Russia and Europe would accelerate global inflation, exacerbate the food crisis, and drive up prices of energy-intensive goods.

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