Counting the cost of going cold turkey on Russian oil
The rising cost and restricted access to oil and gas as a result of the fight between Russia and the West will impact eastern Europe and Africa
Whoever controls oil controls much more than oil, the late US senator John McCain said on the presidential campaign trail in 2008. Fourteen years later, access to hydrocarbons hangs over the economic outlook for countries across the EBRD’s sphere of influence.
In one corner of the battlefield sits Russia, the world’s third largest oil producer, behind Saudi Arabia and the US, and supplier of 41% of Europe’s gas needs. In the other are the European Union and its allies in Washington and London who are determined to impose embargoes on imports to deprive Moscow of much-needed revenues.
In the middle is a host of smaller economies that depend on a stable and sustainable supply of energy to power their industries and ensure their populations do not fall into crisis. But for some, going cold turkey on Russian oil could lead to nasty withdrawal symptoms.
Some of these are in central and eastern Europe, according to the Vienna Institute for International Economies Studies (known by its German acronym WiiW). It warns that soaring gas prices and restrictions on supply will hit countries that are dependent on Russian exports, including the Czech Republic, Germany, Hungary, Italy and the Slovak Republic.
This tension came to a head last week when Hungary, a traditional ally of Russia and sceptic of the EU’s interventions, said it would block the EU’s proposal to phase out all supplies of Russian crude oil without an exception for countries that import oil through pipelines. Along with Slovakia and the Czech Republic it relies on the Druzhba pipeline for supplies of heavy crude.
The three states are likely to be offered more to wean themselves of Russian supplies — at least two years rather than six months for the rest of the EU — but the row highlights the impact of sanctions on the group taking the measures as much as the target.
WiiW warns that sharply rising energy and food prices will hit the region by squeezing real household incomes and thus reducing private consumption. “If there is an energy embargo against Russia, the inflation rate will be in double digits in almost all countries of central, eastern and southeastern Europe,” says Vasily Astrov, its senior economist.
Janet Yellen, the US treasury secretary, has discouraged Europe from introducing an oil embargo on Russia, as it would lead to higher oil prices, higher inflation and lower growth, not just in Europe, but also in the US and the rest of the world.