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Europe buys all the Russian oil it can before banning it

In three months, an EU embargo on imports of Russian crude will come into force, shutting down almost all shipments of this product from Russia to Europe. But right now, Europe is importing more than a million barrels a day of Russian crude and has been doing so for the last month. Someone is stocking up before the taps run dry.

While publicly condemning Russia for its actions in Ukraine and equally publicly assure their constituents that the sanctions are workingEuropean politicians (and others) do not mention the continued purchases of Russian oil.

Yet Russia is exporting some 3.32 million barrels of crude a day by sea, according to Bloomberg calculations, meaning Europe is buying a third of that while it can. And this means that nothing has changed since June, when the embargo was passed, and that Europe will have to find alternative oil suppliers at a time of likely higher prices.

Right now, prices are falling due to new lockdowns in china and expectations of rate hikes by central banks, but once the embargo door closes, prices will most likely rebound just when Europe finds it most painful. And that is precisely why it is now stockpiling the oil it is about to ban.

But Europe is not only supplied with oil. All fossil fuels are in greater and more urgent demand on the continent than they have been for years. The FT called it “the inevitable evil of fossil fuels in wartime” in a recent report and the European Union has not stopped repeating that the emission reduction plans are still in placealthough it seems more and more that they have taken a backseat to energy security.

Russia’s oil exports to northern Europe rose especially sharply in the first week of this month, according to Bloomberg calculations, suggesting Indian Oil Minister Hardeep Singh Puri, who told CNBC this week that “I said that Europeans buy more in an afternoon than I do in a quarter. I’d be surprised if that wasn’t the condition yet.”

Puri’s comments came in response to a question about criticism leveled at India for continuing to buy crude from Russia despite Western sanctions and condemnation of the Ukraine invasion.

The top Indian oil official went further. Asked if he had any moral qualms about importing oil from Russia, he said: “No, there is no conflict. I have a moral duty to my consumer. As a democratically elected government, do I want a situation where the gas pump runs dry?

It would be difficult to argue this point for any politician, even a European one. One could reasonably argue that the European Union is not an authoritarian state in which the government tells commodity traders where to buy their oil. Nevertheless, one could also argue that the bloc is trying to become precisely that kind of authoritarian state.

Earlier this month, the FT reported that the European Commission had drafted a document seeking sweeping powers over European companies. If these sweeping powers are approved, they will include “the possibility of requiring companies to stockpile supplies and break delivery contracts in order to strengthen supply chains in the event of a crisis such as the coronavirus pandemic.”

Deciding what constitutes a crisis would also be a prerogative of the European Commission according to this draft document. Businesses have not exactly welcomed the suggestion that the EC tell them what to produce, store and with whom to trade, so sweeping powers are far from a sure thing. However, there is more than one sign that the EU is moving towards a more centralized and interventionist style of government in the midst of the energy crisis.

Right now, Brussels is studying the possibility of intervening directly in the energy markets due to the tidal wave of margin calls hanging over an already struggling energy sector. Bloomberg reported earlier this month that a suspension of energy derivatives was among the options, along with a cap on the price of gas used for power generation.

The energy market has much more to do with the price of gas than oil, but it is worth remembering that some European companies switched from gas to oil for power generation when gas prices skyrocketed earlier this year. year. Prices aren’t exactly back to normal yet, so oil remains a viable alternative for power generation. And within three months, imports are going to plummet by a million barrels a day. Unless, of course, buyers find an alternative.

To be fair, alternative sources of crude oil are plentiful. Middle Eastern producers, for example, would be happy to sell their oil to Europe. Also Nigeria and Angola. However, they would set the price. One can’t help but wonder if the European Union will start threatening OPEC with a price cap.

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