- The risk of Russia cutting off natural gas could mean Europe is not banning Russian oil, Vortexa’s chief economist said.
- Oil is a major source of money for Russia, while natural gas is its political weapon, David Wech said.
- Europe is heavily dependent on Russian energy, especially gas, and has paid the country billions for it since the invasion of Ukraine.
Europe is under pressure to ban imports of Russian oil, despite its dependence, but this would increase the very real risk that Moscow will retaliate with a halt in natural gas exports that could plunge the whole region into
according to energy market information provider Vortexa.
The European Union gets 30% of its crude oil from Russia. A ban would hurt, but it’s not a matter of not having an alternative, according to Vortexa chief economist David Wech.
“I think the most important factor that probably prevents some European countries from banning imports of Russian crude is the fear that this will lead to a situation where Russian gas is also lost,” he said in a statement. interview with Insider this week.
Russia is a major producer of oil and gas and earns billions from its exports. The EU is its main customer, especially for natural gas, which covers 40% of the needs of the whole region, and in the case of some Member States, almost 100% of demand.
“What’s important to understand here as well is that Russia makes a lot more money from oil than from gas. So it won’t hurt its oil revenue,” Wech said. “They know that Europe is more dependent on gas, they know that they have more power on that side.”
“So gas is the tool of political power. Oil is the tool of income,” he said.
Since invading Ukraine, Russia has earned more than $66 billion from its energy imports. The EU spent $46 billion to pay for fuel in Moscow during this period, according to a Energy and Clean Air Research Center report.
Western countries hit Russia with severe sanctions after the war, but the EU has yet to ban Russian oil and gas. Less dependent nations, such as the United States and Britain, have stopped Russian energy imports.
Russia has implemented its own measures, such as requiring payment for natural gas in rubles from “hostile countries”. Gas generally continued to flow uninterrupted through pipelines serving Europe, until this week when Russia announced it had turned off gas taps to Poland and Bulgaria. European natural gas prices are
The infrastructure alone – a network of overhead pipelines that run thousands of miles across many countries – means it’s much easier for Russia to cut off gas to Europe than oil.
“It’s not that easy to have a say in where the oil goes. Russian companies want to export the oil, they don’t care who ultimately gets it,” Wech said. “There is not this direct link like with the gas pipelines, where there is this one-to-one relationship, but Russia can decide who it (cuts off) the gas from.”
Europe can easily source oil from other countries, Wech said, although a ban would risk an escalation of war in Ukraine and a direct impact on consumers in the region who are already struggling with a vertiginous inflation, largely due to soaring oil and gas prices.
Natural gas prices in Europe jumped 180% immediately after the invasion. They have since fallen, but are still 300% higher than they were at this point last year.
One option is the United States, which, thanks to the shale oil boom, is now the world’s largest producer and its exports go around the world, Wech said.
“The United States will rank very highly, that’s natural, given their size, proximity and also the quality of the rough, but that’s by far not the only option.”