European Union Makes Decision to Give Up Russian Oil

Europe decided on Sunday to stop Russian oil and other refined products, reducing energy dependence on Moscow, with the aim of further reducing revenues from Kremlin fossil fuels. This step is part of measures to punish Moscow on its aggression in Ukraine.

The Russian oil ban adds another recently taken move to it to set its price on a ceiling, which the Seven Group (G7) agreed on. The goal is for Russian oil to continue to go to countries like China and India, but to avoid a sudden price increase that would harm consumers worldwide. Likewise, profits financing Moscow's war in Ukraine would be reduced.

Oil is the key to the economy because it is used to operate cars, trucks carrying goods, agricultural equipment, and factory machinery. Oil prices have been raised due to an increase in demand following COVID-19's pandemic and restrictions on its refining capacities, contributing to global growth and inflation.

The new sanctions are expected to create uncertainty over prices at a time when the European Union, comprised of 27 member states, will try to find other oil supply sources, most likely from the US, the Middle East and India, to replace Russian oil, which at one point met 10% of Europe's total oil needs. Oil coming from these countries will take more time because of distance compared with the time needed to come from Russia's ports.

Prices could also increase due to the revival of China's demand as this country's economy recovers after the completion of drastic restrictions related to COVID-19.

The ceiling on the price of oil would not create immediate consequences because it is located around those levels at which it is currently traded. Russia's main problem will now be finding new customers, not avoiding price ceilings. However, the border aims to prevent the benefits Moscow will provide from any sudden increase in oil prices and refined products.

Analysts say there may initially be an increase in prices as markets self-regulate with the changes. But they say the embargo should not cause a price increase, if the ceiling price functions properly, and Russian oil continues to go to other countries.

Russia won more than $2 billion from the sale of oil in Europe during December alone, as importing companies were supplied with large amounts pending a ban decision.

Europe has already banned Russian coal and most of its crude oil, while Moscow has cut off most of its natural gas deliveries. / VOA