Oil Embargo: How It Will Hit Russia and How to Increase Its Impact

EU leaders have agreed to ban Russian oil supplies in a package of sanctions aimed at Russia after months of negotiations.

Read more about the oil embargo agreement and how it will hit the Russian Federation in a column by DiXi Group President Olena Pavlenko It Hurts but Not Enough: What Will Be the Effect of the Oil Embargo on Russia.

According to the agreements, which have been approved but not yet officially published, two-thirds of Russian oil import by sea must be blocked immediately (previously the EU said it requires a six-month) and up to 90% by the end of the year.

The remaining 10% is the temporary exemption for Hungary, Slovakia, and the Czech Republic which depend on Russian oil most of all.

Bulgaria has obtained another temporary exemption up to the end of 2024 due to the peculiarities of its refinery.

Cutting off Russian oil is a difficult but not a critical decision. 

Russia's share in total oil imports is just over 20%. Germany, Poland, and the Netherlands buy the most oil. Thus, these countries have access to the sea. It means they can quickly find another source of supply.

Provided that all EU member states are able to meet their commitments, Russia's losses are estimated at between $3 to $4.5 billion a month.

Finally, sanctions will lead to rapid and tangible losses for the aggressor country.

The Russians themselves plan to reorient oil supplies to Asia - to India and China. However, they do not need such an amount of oil.

Moreover, the complexity of logistics will increase the cost of Russian oil, and the EU's ban on tanker insurance could make Russian goods uncompetitive.

As a result, both Russian and Western experts are already predicting a reduction in oil production in Russia (as well as gas). And this will be a strategic blow for the country for many years to come because competitors from other regions will immediately replace Russia.

At the same time, this positive decision taken by the EU should be intermediate in increasing pressure on Russia's energy sector.

First, the Russians hope that the embargo will not last long, and it will soon be possible to resume business ties with EU members.

Second, in addition to oil, there is gas, which is more difficult for the EU to replace.

Third, Russia still has little room for maneuver in Asian markets.