The European Union is mulling its biggest step yet in retaliation for Russia’s unprovoked invasion of Ukraine: banning oil imports from the country altogether.
Formal deliberations began Wednesday after EU President Ursula von der Leyen outlined a proposal, and officials are hoping to make a final decision (approval would require unanimous consent from all 27 member countries) by week’s end. Even though the US banned imports of Russian oil in early March, its officials warn the EU’s ban may simply drive up prices — lining Russia’s pockets in the process. While all this is happening, another global superpower could walk out the big winner: China.
A Crude Awakening
The EU’s plan would see imports of Russian crude banned within six months, while refined oil products would be verboten by the end of the year. But war in Ukraine has already spun Europe’s energy paradigm on its head. Energy prices are smashing historic highs across the Continent, with countries as well as companies turning to alternative sources of gas and oil from around the globe. Shipments of liquified natural gas (LNG) from North America and Europe are up 81% and 25% year-over-year, respectively, Vortexa chief economist David Wech told The Wall Street Journal on Wednesday.
Still, while von der Leyen says an all-out ban could deprive “the Russian economy from its ability to diversify and modernize,” second-order consequences are quickly turning into lucrative opportunities for Russia and China alike:
- Oil prices spiked at the EU’s announcement yesterday, with Brent crude futures rising over 4% to $109 a barrel. This is precisely the danger US Treasury Secretary Janet Yellen warned about last month, when she said “counterintuitively [a ban] could actually have very little negative impact on Russia because although Russia might export less, its price for its exports would go up.”
- Before the EU’s proposal, Chinese refiners had been reaping the rewards of Russia’s cornered oil market, buying Russian oil on the cheap as Europe tapers off imports amid sanctions and embargoes. Chinese purchases of Russian crude and petroleum products have risen year-over-year by roughly 86,000 barrels per day this past month, the Financial Times reported Tuesday.
Pass the Potash: The EU’s proposal on Wednesday also includes sanctions against Belarus’s top producer of potash (a key fertilizer), JSC Belaruskali, plus its export business, Belarusian Potash Co. Belaruskali controlled 20% of the global potash market before the war, while shipments to the EU accounted for 8% of the nation’s potash export revenue in 2020, Bloomberg reports.
Swift retribution: The EU is also considering banning Russia’s top bank, Sberbank, plus two others, from the SWIFT financial-messaging network — essentially boxing them out of the global economy. Ukraine’s president Vladimir Zelensky publicly floated such a ban weeks ago.