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Current Affairs

Impact of Russian oil sanctions

Date: 06 May 2022 Tags: Miscellaneous

Issue

A phased embargo on Russian oil is being proposed by the European Union on Moscow for the invasion of Ukraine.

 

Background

Before the start of war, EU imported 2.2 million barrels per day (bpd) of crude oil and 1.2 million bpd refined oil products.

 

Details

  • The prices of petroleum products will get more expensive as fuels for industrial and passenger vehicles are imported from Russia.

  • Refineries will have to source crude oil from other countries. Currently, countries such as Germany, Hungary, Poland and Slovakia get crude oil through the Druzhba pipeline.

  • Countries will have to rely on sea and air transport to bring crude oil. Internal movement will have to rely on railways, trucks and ships.

 

Replacing Russian oil

  • Refineries are designed based on grade of crude oil. By replacing Russian oil, refineries have to conduct blending.

  • This may impact the yield of the plant and also cost more money. Refinery equipments may get damaged and freight charges may cost extra.

 

Refining capacity

  • Existing refineries have cut their capacity due to shortage of crude oil after the resumption in demand.

  • The cost of switching off and resuming refinery is costly. The rising cost of crude oil will also impact refining capacity.

 

Transition period

  • The countries in EU have time till end of this year to prepare for the disruption and would likely fill storage in areas near refineries.

  • The disruptions could occur prematurely if Russia stops supply of crude oil. This may trigger energy crisis across Europe.

 

Alternate options

  • European countries are looking towards Norway for crude oil but it will need to be transported through ships, costing more money compared to Russian crude.

  • The middle-east market is already crowded with many Asian countries already in line to buy from Gulf countries.