The EU exits the unrealistic Russian oil embargo

According to BP, Russia's crude oil exports to Europe accounted for more than 6% of global crude oil trade in 2019, and petroleum products exports accounted for more than
8% of total global petroleum products trade.
Replanning such a huge share of global trade over the course of a few weeks or months would trigger a huge upheaval
.

EU leaders have stopped imposing an immediate embargo on Russian crude oil and petroleum products because the policy is clearly impractical
.

On Monday, EU member states discussed increasing sanctions against Russia, disagreeing on whether to impose an oil embargo on Russia
.
According to reports, foreign ministers of Lithuania and Ireland have called for the implementation of an oil ban as part of a new round of sanctions against Russia, while Germany, the Netherlands and other countries oppose the above proposal
.

German Chancellor Chancellor Schultz told German lawmakers this week that imposing an immediate embargo on fossil fuels in Russia "will plunge our country and Europe as a whole into recession.
"

According to BP, Russia's crude oil and petroleum products exported to Europe rank second in the volume of bilateral oil trade between any two trading partners in the world, after the United States and Canada
.
In 2019, the last year before the pandemic, Russia provided 29% of Europe's crude oil imports and 51% of its oil imports
.

No other trading partner can match Russia's share, which would make it extremely difficult to be replaced
in the short term.

So even speculation about a possible ban has pushed oil prices up sharply this week, despite traders weighing practical operational difficulties
.
And as EU policymakers apparently began to abandon the idea, oil prices subsequently fell back
.

A New Order of Oil?

Some embargo advocates have suggested that the EU could ban Russian oil imports and then encourage a realignment of international oil flows to minimize the net loss
of supply that causes prices to soar.
In this case, sanctioned Russian crude would be left to buyers in Asia, which would release it from the Middle East for refineries
in Europe.

In terms of products, Russian fuel oil and distillates can be shipped to South America, Africa and Asia, while Europe can import more from
the United States, Asia and the Middle East.

It seems like a good idea, but there are a number of serious obstacles to this work, which may be why
it cannot be implemented for the time being.

For producers and consumers, supply routes will become longer, adding freight tonnage miles, driving up demand for tankers and significantly driving up transportation costs
.
What's more, crude oil can only be semi-replaced
.
Most refineries are optimized to handle specific qualities of oil
.
Exchanging crude oil from Russia and the Middle East will reduce efficiency and increase costs and prices
.

Recalibrating oil flows can undermine long-standing customer and contractual relationships
.
Middle Eastern marketers have invested time and effort in building long-term relationships
with refineries in the Asian region.
Asia is seen as a growing market of the future, while Europe is a declining market in the past, especially with its plans
to accelerate its progress to net zero.

It makes no strategic sense to break long-term contracts and abandon Asia's lucrative growth markets in favor of supplying declining European refiners, perhaps only for a few months or years
.
Similarly, North American refiners have lucrative semi-monopoly markets in Central and South America, and they will be reluctant to trade Russia for markets
in Europe.

For Asian refiners, if these exports could later be subject to extraterritorial sanctions by the United States and the European Union, they have little incentive to undermine long-term relationships with safe Middle Eastern suppliers and instead rely on Russian exporters
.

The flow of crude oil and products around the world forms a closely connected network or matrix
.
Forcibly reprogramming Russian exports through sanctions means that all other supplier and customer relationships will change
.
For business reasons, most crude oil exporters and refiners choose crude oil in the nearest export market and buy crude oil
from the nearest suitable import source.

So far, Russia has been overwhelmingly supplying the nearest major importer, Europe, but even before the Russian-Ukrainian war, supply began to slowly shift to the fastest-growing Asian market
.
For the same distance reasons, Europe buys most of its imported crude oil and products
from Russia and other countries in the former Soviet Union.

The political imperative to end these exchanges and interdependence now conflicts
with the commercial and geographical logic of maintaining them.

Political necessity may prevail, but it is unlikely to do so anytime
soon.
According to BP, in 2019, Russia's crude oil exports to Europe accounted for more than 6% of the total global crude oil trade, and petroleum products exports accounted for more than
8% of the total global oil products trade.
Reimagining such a large share of global trade over the course of weeks or months would trigger a huge upheaval
.

The EU has no choice for a short time

Before the Russian-Ukrainian war, the global oil market was already tight, with inventories below the pre-epidemic five-year average and in a downward trend
.
Imposing embargoes or other sanctions would only result in a modest reduction in Russia's net exports and deprive the country of revenue, but it would create a high risk
of soaring energy prices.

Oil embargoes imposed on Iraq in the 1990s and Iran and Venezuela in the 2010s were offset by additional supplies from other oil-producing countries, reducing the overall impact of the embargo on
oil prices.
For now, neither Saudi nor U.
S.
shale oil companies seem eager to ramp up production to make up for the loss of Russian supplies, and the White House has so far yet to reach an agreement
on lifting sanctions on Iran and Venezuela.

With little other capacity, EU policymakers concluded that the price risk posed by the embargo on Russian oil exports was too high, so they abandoned the idea
for the time being.