# Explainer-What would be the impact of Russian oil sanctions in Europe?
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2022-05-04
Category: NEWS
Category URL: https://financedigest.com/category/news
Meta Title: Impacts of EU's Proposed Russian Oil Ban on European
Meta Description: Learn how a phased embargo on Russian oil by the EU could affect fuel prices, refinery operations and energy security in Europe. Find out more here.
URL: https://financedigest.com/explainer-what-would-be-the-impact-of-russian-oil-sanctions-in-europehtml

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LONDON (Reuters) – The European Union has proposed a phased embargo of Russian oil, tightening its sanctions on Moscow for its invasion of Ukraine. What would the impact be of banning Russian barrels in Europe?

WHAT DOES THE EU CURRENTLY IMPORT?

The European Union imported 2.2 million barrels per day (bpd) of [crude oil](https://www.financedigest.com/oil-near-flat-as-us-crude-stock-draw-contends-with-economic-concerns.html "Oil near flat as US crude stock draw contends with economic concerns") and 1.2 million bpd refined oil products before the war in Ukraine, according to the International Energy Agency (IEA).

CARS

Filling up your [car will probably get more expensive](https://www.financedigest.com/top-expensive-car-brands.html "Top Expensive Car Brands"). Europe imports not only crude oil from [Russia](https://www.financedigest.com/oil-prices-steady-as-news-of-saudi-russia-meeting-calms-investors.html "Oil prices steady as news of Saudi, Russia meeting calms investors") but also refined oil products, such as diesel to fuel industrial and passenger vehicles. Importing diesel from further afield than Russia will mean increased freight costs and thus [higher prices](https://www.financedigest.com/vhs-tapes-selling-for-46000-higher-than-original-price.html "VHS tapes selling for 46,000% higher than original price") at filling stations. In Germany, for example, 74% of diesel imports before the [war came from Russia](https://www.financedigest.com/russia-sharply-scales-back-far-east-war-games-with-china.html "Russia sharply scales back Far East war games with China"), data from consultancy FGE Energy shows.

REFINERIES DEPENDING ON [RUSSIAN OIL](https://www.financedigest.com/oil-gains-as-russian-supply-cuts-temper-concerns-over-rate-hikes-high-stocks.html "Oil gains as Russian supply cuts temper concerns over rate hikes, high stocks")

Russian [oil makes up a fifth of oil refined in Europe](https://www.financedigest.com/u-s-oil-exports-to-europe-hit-record-in-march-on-steep-discounts.html "U.S. oil exports to Europe hit record in March on steep discounts"), according to the IEA. Some [refineries](https://www.financedigest.com/oil-rises-as-heightened-geopolitical-risks-exacerbate-supply-concerns.html) producing fuel from gasoline to jet fuel such as Germany’s PCK Schwedt and Leuna as well as refineries in the Czech Republic, Hungary, Slovakia and Poland get [fed Russian crude oil](https://www.financedigest.com/oil-dips-after-fed-comments-us-crude-stock-build.html "Oil dips after Fed comments, US crude stock build") via the Druzhba – or “Friendship” – pipeline.

Supplies along Druzhba have been fluctuating sharply in recent years with deliveries [running as high as 1.5 million bpd while declining in recent months](https://www.financedigest.com/russian-services-activity-shrinks-for-third-month-running-in-dec-pmi.html "Russian services activity shrinks for third month running in Dec -PMI") including February to around 0.8 million bpd.

Poland can switch to seaborne supplies from places like [Saudi Arabia](https://www.financedigest.com/saudi-arabias-king-crown-prince-send-condolences-on-queen-elizabeths-death.html "Saudi Arabia’s king, crown prince send condolences on Queen Elizabeth’s death") or Norway via the Gdansk port in the Baltic Sea.

PCK Schwedt, which supplies cars and airports in Berlin and the region, and Leuna [near Leipzig could get some oil](https://www.financedigest.com/oil-spills-and-near-misses-more-ghost-tankers-ship-sanctioned-fuel.html "Oil spills and near misses: more ghost tankers ship sanctioned fuel") from the German Baltic sea port of Rostock – much less of a crude oil hub than Gdansk – but not enough for them to run at full capacity.

Poland, itself trying to replace all [Russian crude](https://www.financedigest.com/factbox-who-is-buying-russian-crude-oil-and-who-has-stopped.html "Factbox-Who is buying Russian crude oil and who has stopped") in its [refineries,](https://www.financedigest.com/oil-rises-as-heightened-geopolitical-risks-exacerbate-supply-concerns.html) could route some of the oil arriving in Gdansk to these two German refineries, but the details have not been worked out yet.

Changing these supply routes will most likely mean higher feedstock [prices for two of Germany’s biggest refineries, feeding into higher prices for end](https://www.financedigest.com/uk-house-prices-end-2022-on-a-weaker-note-after-pandemic-boom.html "UK house prices end 2022 on a weaker note after pandemic boom") consumers.

For all the [refineries](https://www.financedigest.com/oil-rises-as-heightened-geopolitical-risks-exacerbate-supply-concerns.html) in landlocked countries, making up for zero oil via Druzhba will be a mammoth task. It is likely to involve more expensive and less efficient transport via trucks, railways, rivers or the future extension of other [pipelines such TAL going from the Mediterranean via Austria to Germany](https://www.financedigest.com/germanys-gas-crisis-in-charts-pipeline-repair-and-then-what.html "Germany’s gas crisis in charts: Pipeline repair, and then what?"). Such an extension still needs approval from southern [German authorities](https://www.financedigest.com/german-tax-authorities-should-show-leniency-to-households-firms-amid-energy-crisis-letter.html "German tax authorities should show leniency to households, firms amid energy crisis – letter").

Slovakia, Bulgaria and the Czech Republic are seeking exemptions from an imminent EU [ban on Russian oil](https://www.financedigest.com/explainer-why-malaysia-is-considering-a-ban-on-palm-oil-exports-to-the-european-union.html "Explainer-Why Malaysia is considering a ban on palm oil exports to the European Union") to sort such alternatives, while Hungary does not support the plans out of fear for its energy security.

CAN THEY REPLACE [RUSSIAN OIL](https://www.financedigest.com/oil-prices-rise-after-opec-keeps-output-steady-russian-price-cap-imposed.html "Oil prices rise after OPEC+ keeps output steady, Russian price cap imposed") WITH ANY OTHER OIL?

Refineries are typically set up to run on a specific type of [crude oil](https://www.financedigest.com/oil-falls-as-earthquake-impact-on-crude-eases-rate-hike-fears-rise.html "Oil falls as earthquake impact on crude eases, rate hike fears rise"), 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](https://www.financedigest.com/most-of-bps-whiting-refinery-units-shut-following-fire-sources.html "Most of BP’s Whiting refinery units shut following fire -sources") revamped, but this can change the yield of a refinery and cost more money in addition to higher freight costs.

Traditional consumers of [Russian](https://www.financedigest.com/gazprom-books-no-yamal-europe-gas-transit-capacity-for-dec-30.html) [oil will also now have to compete not only with each other for alternative oil imports but also with existing customers in Asia](https://www.financedigest.com/asia-shares-bank-on-eventual-china-opening-oil-gains.html "Asia shares bank on eventual China opening; oil gains").

REDUCED REFINING RUNS?

An [oil refinery cannot simply be switched off as a restart](https://www.financedigest.com/keystone-oil-pipeline-restart-timetable-unclear-traders-worry-about-supply.html "Keystone oil pipeline restart timetable unclear; traders worry about supply") is expensive and complex.

Globally, refining capacity is [shrinking as the world tries to reduce its dependence on oil-based fuels](https://www.financedigest.com/totalenergies-accelerates-refinery-wage-talks-as-fuel-supply-shrinks.html "TotalEnergies accelerates refinery wage talks as fuel supply shrinks"). Morgan Stanley [estimates that capacity has shrunk by as much as 2.7 million](https://www.financedigest.com/spotifys-monthly-active-users-top-500-million-beat-estimate.html "Spotify’s monthly active users top 500 million, beat estimate") bpd since the onset of the coronavirus pandemic.

With the re-emergence of economic growth as [lockdowns come to an end](https://www.financedigest.com/shanghai-finds-cases-after-five-days-of-zero-covid-but-end-of-lockdown-on-track.html "Shanghai finds cases after five days of ‘zero COVID’ but end of lockdown on track"), refining margins have sky-rocketed \[PRO/E\], meaning [refineries will try to squeeze as much fuel](https://www.financedigest.com/uniper-sells-uae-marine-fuels-refinery-to-consortium-including-montfort.html "Uniper sells UAE marine fuels refinery to consortium including Montfort") as possible into the market.

Refineries that have the toughest supply issues, however, are likely to see [lower margins because their crude costs](https://www.financedigest.com/bmw-bets-on-design-and-recycling-not-mining-to-lower-battery-costs.html "BMW bets on design and recycling, not mining, to lower battery costs") will rise, so operators may slow processing.

Countries and refiners typically also have [storage tanks](https://www.financedigest.com/cloud-computing-to-be-the-storage-think-tank-of-the-krill-oil-market.html "Cloud Computing To Be The Storage Think-Tank Of The Krill Oil Market") which they can tap in case of short-term disruptions.

TRANSITION PERIOD?

EU countries have until the [end of the year to prepare for the disruption and would likely fill storage in areas near](https://www.financedigest.com/exclusive-nissan-seeks-tech-tie-up-without-renault-as-alliance-nears-end-of-road.html "Exclusive-Nissan seeks tech tie-up without Renault as alliance nears end of road") refineries that might struggle.

It would cause more severe disruptions, if [Russia cuts supplies](https://www.financedigest.com/exclusive-kazakh-mcdonalds-shut-outlets-temporarily-after-halting-supplies-from-russia-sources.html "Exclusive-Kazakh McDonald’s shut outlets temporarily after halting supplies from Russia – sources") first.

Germany has warned of a recession without [Russian oil](https://www.financedigest.com/factbox-u-s-offers-new-details-on-plan-to-cap-russian-oil-prices.html "Factbox-U.S. offers new details on plan to cap Russian oil prices") and gas.

(Reporting by Shadia Nasralla; Editing by Veronica Brown and Emelia Sithole-Matarise)


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