The EU tries to stay true to the principle that has guided the sanctions imposed on Russia since the war began: to cause as much damage as possible to the Russian economy, minimizing self-harm as much as possible. The partial embargo on oil, agreed at the European Council this week, follows that maxim: it hits the main source of foreign exchange for the Eurasian giant —almost 31,000 million euros from the EU since the start of the war, compared to 26,000 from the gas and 1,500 coal, according to the latest data from the thinktank environmentalist CREATES— no draft damage to the hull of the Community economic vessel. The problem is that it rains pours: European GDP had been losing steam since before the start of the invasion of Ukraine, a trend that has accelerated in recent weeks; and inflation has reached a maximum since the creation of the single currency.
All the analysts consulted by EL PAÍS agree on one point: the veto will somewhat slow down the growth of the Twenty-seven and, above all, it will increase the pressure on prices. “Substituting Russian oil would be possible for most Member States, but it could increase prices,” pointed out the European Commission in its spring forecasts, when the measure was still one more possibility in the menu of available options. The Bank of Spain put numbers on Tuesday to those words: Totally dispensing with the crude that comes from the Urals will subtract seven tenths from the EU’s GDP and add another seven on prices. The economic outlook in the eurozone is darkening further with the rate hikes that the European Central Bank (ECB) is preparing for this year, the first of which is already scheduled for July.
The calculations of the Spanish regulator are based on the hypothesis that the veto was total and not partial, as it has finally been: between now and the end of the year, 90% of imports will be reduced. This progressivity is what leads economists to think that the impact of the measure on the European economy will be limited. “The embargo will not have a substantial impact on the economy, as it will take time to come into force and the markets will readjust in the meantime,” says Simone Tagliapietra, an energy specialist at the Brussels think tank Bruegel.
Daniela Ordonezfrom Oxford Economics, seconded his analysis: “They are less dependent on oil than on gas, and three months have passed since the war began: countries have had room to reduce their dependence: it is not a decision that has been made in a day for another”, he assesses by phone.
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So far, the reassuring speech: there are many reasons to think that things can get ugly with the veto. No one is considering recession in their forecast chart yet, but the risk is there: “Given rising energy prices and the war in Ukraine, our analysis suggests that the risk of recession in the eurozone and the UK is higher in the short term than in the US ”, Goldman Sachs technicians pointed out this Monday. The same US investment bank also pointed to the risk that Brussels and other European capitals fear most: that Moscow responds by cutting off gas. “Which can lead to a significant worsening of prospects,” he added.
The Community Executive itself admitted something similar in the forecasts it launched a little over two weeks ago when calculating that, in a hypothetical scenario of a cut in the supply of Russian gas, the EU economy would be practically stagnant this year and would hardly grow more than 1% in 2023. They would have it worse if this case came to Germany or Italy, highly dependent on this Russian fuel. The Bundesbank (the German issuing institute) calculates that a cut in the supply of gas to the European economic locomotive would lead to a recession and a drop in its GDP of more than 3%.
“It does not matter that you can get alternative suppliers: it will certainly become more expensive, and in an environment of rising inflation for too long, this will have a negative impact on consumers: they will have to be more careful when to decide what to spend your money on, especially since the rise in prices is fundamentally affected by basic products and services, which cannot be stopped consuming,” says Ordóñez, from Oxford Economics. His warning goes one step further: with the ban on Russian crude, he says, corporate profits “are also going to suffer more than previously thought and, if they continue to tighten, the labor market will also start to decline. “If that happens, we would already be talking about something much more worrying,” he summarizes.
Oil and gas: divergent paths
“The embargo could push up oil prices due to the additional pressure it would put on inventories, especially at a time when Chinese demand for oil could increase if Beijing lifts its zero covid policy”, analyzes Silvia Merler, from Johns Hopkins University. “On the other hand, the recent debate on Russia’s exemption from OPEC production quotas [el cartel de los países exportadores] it could allow other producers to increase production and counteract the rise in prices.”
The difference between the consequences of dispensing with Russian oil or gas is mainly due to two factors: one is that crude oil can arrive by ship from anywhere in the world much more easily than gas. The other is that Moscow has much less weight in the oil market than it does in the gas market and therefore loses bargaining power.
Within the group of products derived from crude oil, moreover, the shock will not be far from homogeneous. Diesel will rise more than gasoline: because one of the main raw materials for its production, vacuum diesel, comes largely from Russia; and because the crude that the Eurasian country pumps, the so-called Ural blend, is especially suitable for the production of this fuel.
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