Europeâs Russia oil embargo risks flaring already hot inflation
Qatar Tribune
Agencies Berlin European countries already reeling from record inflation risk aggravating their plight with the decision to shut themselves off from Russi...
Agencies BerlinEuropean countries already reeling from record inflation risk aggravating their plight with the decision to shut themselves off from Russian oil imports.While European Commission President Ursula von der Leyen promises the planned embargo will be implemented âin a way that allows us and our partners to secure alternative supply routes,â German Economy Minister Robert Habeck has warned the regionâs top economy will suffer, citing possible shortages and further upward pressure on prices.The step is seen as more manageable than disrupting flows of Russian natural gas. But an oil ban leaves the world with less supply as the US and Europe face the fastest inflation in decades alongside wilting confidence because of the war in Ukraine.âRussian oil can be replaced on the world market in the short term, but with additional costs and logistical challenges,â German industry trade group BDI said Wednesday. âGiven the oil embargo, energy prices will probably to continue to rise.âThe EU has long agonised over whether it can withstand being cut off from a top energy supplier, having received more than a quarter of its oil imports from Russia last year.The short-term impact of the EUâs proposal should be limited because the timetable is in line with existing plans by governments to wean themselves off Russian oil, according to Klaus-Juergen Gern, an economist at the Kiel Institute for the World Economy.Even so, markets for refined products like diesel, where Russia is an important supplier, may âbecome tight, and prices could increase further,â Gern said by phone. And while lockdowns in China could make it easier to find alternatives to Russia for oil â that could change if the Asian countryâs economy picks up again.JPMorgan economists Malcolm Barr and Greg Fuzesi said in a report to clients that the EUâs plans donât change the economic outlook, cautioning that uncertainties over energy supplies remain.The most extreme step would be a ban on Russian natural gas, which mostly flows through pipelines and is harder to replace than oil because sea deliveries from other suppliers couldnât cover the shortfall.For Germany, the Bundesbank says activity is at risk of shrinking nearly 2 percent in 2022 if an energy embargo leads to restrictions on power providers and industry. Some analysts have argued that the impact would be less severe, and that the economy would be able to handle the shock.Berenberg economist Holger Schmieding says Europe could phase out Russian oil by year-end without causing shortages and dramatic price increases.UBS Global Wealth Management said that while the impact of the embargo on Europeâs economic growth is likely to be âmanageable,â uncertainty over supplies will probably âkeep energy prices supported.âThe war in Ukraine has brought new economic concerns for the EU. The region had started the year on a positive footing after two years of dealing with the coronavirus pandemic, but that came to an abrupt end as the conflict in Ukraine developed.The oil embargo builds on a ban on Russian coal that was announced last month. It also raises the prospect of restrictions on Russian natural gas, too.Natural gas represents the most significant energy source from Russia for the EU, accounting for about 40 percent of all the blocâs imports. Ceasing it overnight would have major economic consequences.The commodity has already been caught up in the political fallout from Russiaâs invasion of Ukraine. Last week, Russiaâs state-owned energy firm, Gazprom, stopped supplies to two EU nations, Poland and Bulgaria, because they had refused to cave in to demands to pay for gas in rubles. The move led many to fear that other countries in the EU could see their supplies halted.Wednesdayâs proposal to ban oil marks the EUâs sixth round of sanctions on Russia. The package also includes removing Sberbank from the international payments system SWIFT.âWe de-SWIFT Sberbank â by far Russiaâs largest bank, and two other major banks. By that, we hit banks that are systemically critical to the Russian financial system and Putinâs ability to wage destruction,â von der Leyen also said Wednesday.In addition, the commission wants to ban three Russian state-owned broadcasters from European airwaves as well as sanctioning high-ranking Russian military officers and other individuals, saying they were involved in war crimes in Ukraine in Bucha and actions in the besieged city of Mariupol.All of these measures were discussed by European ambassadors on Wednesday morning before the sanctions took effect. It could take a couple of days before the sanctions are fully approved at the EU level.