Russia would benefit economically from an EU oil embargo, at least in the short term, and the proposed ban would fail to stop Russian energy sales to other markets in its current form, a Neue Zurcher Zeitung analysis has concluded.
Studying the proposal and its economic implications, the paper noted that in an already tight crude market, the loss of Russian supplies would spend global oil prices soaring, allowing Moscow to increase revenues on the remaining crude it sells to non-European markets and “the higher price compensating lower [export] volumes.”
On top of that, the gradual implementation of the oil ban, as proposed by Brussels, would allow Russia to earn a tidy profit on more expensive crude for Europe while the EU is stuck paying higher prices as it scaled down imports, the outlet said.
China and India would also benefit, Neue Zurcher Zeitung noted, with the Asian economic giants able to take advantage of discounted Russian oil supplies, as they have already done over the past two months.
Meanwhile, in Europe, “even higher prices for petrol, diesel and kerosene will also fuel inflation and could contribute to a recession”, the outlet wrote.
The paper suggested that the central question worth asking was what outcome Brussels hopes to achieve via its embargo, and whether there was another way to achieve that objective besides the radical measure.
On Monday, Russian deputy prime minister Alexander Novak announced that Russian oil companies were already in the process of creating new supply chains and finding new markets, and that exports have increased in the Asia-Pacific market.
Spiking prices for Russian oil and gas have also allowed Russia to post the highest current account surplus in recent history, with the Central Bank reporting a current account balance of $58.2 billion in the first quarter of 2022, more than double figures it posted in the first quarter of 2021.
“The EU is aware of the holes in its possible embargo,” Neue Zurcher Zeitung noted. “In a draft version of the plan, the EU Commission has therefore proposed that European companies be banned from global trade in Russian oil with third countries. This includes financing, shipping and insurance services in the context of oil trading.”
But the latter proposals have apparently been shelved, with sources telling the Financial Times Monday that intense lobbying by Malta and Greece - which account for over half of the EU-flagged tonnage of tankers, led to the shipping restrictions idea being dropped. The proposed ban on insurance services reportedly remains on the table however, with EU diplomats said to be lobbying Britain in hopes that Lloyds of London signs on to put the squeeze on Russian exporters.
There are ways around secondary restrictions as well, Neue Zurcher Zeitung noted, pointing to Iran’s years of successful resistance to US sanctions on its crude exports via barter transactions, the transshipment of crude to disguise its origins, fake registries, the switching off of tanker satellite tracking equipment, etc.
The newspaper proposed that a levy on Russian energy, rather than embargo, could serve as an alternative, designed to reduce the Russian state’s profits while leaving delivery quantities unaffected. Another option is to somehow reduce demand or increase supply. But such measures are easier said than done, and beyond the capabilities of the EU, which produces little of the black gold it consumes.