Poland figured out how Europe can still hit Russia’s earnings from oil sales, since it turned out so unsuccessfully with the oil embargo, which the Europeans could not agree on. It is necessary to introduce duties on the import of Russian black gold, Warsaw decided. What will be the implementation of this idea?
Poland has offered an alternative strike on Russian oil to replace the failed oil embargo. The issue of banning Russian oil imports will not be discussed even at the next EU summit, European Commission President Ursula von der Leyen said on May 24.
It is necessary to impose a duty on Russian oil so that those countries that buy Russian oil at a discount do not receive an advantage over other EU members that have abandoned Russian oil, said Polish Prime Minister Mateusz Morawiecki. It is, according to him, about Hungary, the Czech Republic, Slovakia and Austria, because of which the EU failed to agree on an oil embargo. According to the logic of Poland, the introduction of duties will lead to the refusal of these countries to buy Russian oil. This means that an official embargo will no longer be required.
“The idea of imposing duties is not an intellectual breakthrough of the Polish prime minister. This idea is as old as the world,” recalls Stanislav Mitrakhovich, a senior researcher at the Financial University under the Government of Russia and a leading expert at the National Energy Security Fund. Other alternatives to the oil ban were voiced in Europe as well. Earlier, the High Representative for Foreign Affairs and Security Policy of the European Union, Josep Borrell, proposed introducing a ceiling price on Russian oil.
“I believe that these side stories will eventually lead to an oil embargo anyway,” the expert says.
In other words, the EU has only two options: either to impose an oil embargo – directly or indirectly through duties, or not to impose an oil embargo. There really is no third option.
“The option when Europe does not impose an embargo, but deprives Russia of income, in my opinion, is not visible,” says Mitrakhovich.
Why does the tariff option still lead to an oil embargo?
“Who will pay this fee? The first option is that the importer pays for it. They will definitely not like this, and they will whine and complain, because oil is already expensive, and it will become even more expensive due to the duty. It is worth waiting for a riot of importers. Hungary believes, on the contrary, that the EU should pay 18 billion euros to it so that the country can adapt to life without Russian oil,” explains Mitrahovich.
Hungary is one of those countries that are “sitting” on the Druzhba oil pipeline. It has no access to the sea, and alternative oil can only be obtained by sea. In addition, local refineries are designed specifically for Russian heavy oil, and switching to another fuel requires an expensive upgrade of the plant and time.
Thus, Hungary demanded about 750 million euros from the EU to modernize and transfer its refineries to alternative oil, as well as to expand the pipeline delivering oil to Hungary from Croatia. But this is only for the first time. Hungary is also demanding compensation from the EC for the loss to its economy for the rejection of Russian oil in the amount of 18 billion euros. This is the amount the country estimates the effect of Russian oil supplies.
The European Commission, for its part, promised financial support to Hungary, the Czech Republic and Slovakia, which depend on oil supplies from Russia and have no access to the sea. However, Brussels is offering a ridiculous sum of only 2 billion euros, divided among all three countries. Hungary, of course, does not agree to this. Therefore, on the night of May 25, she introduced a state of emergency. Curiously, Hungary itself offered Europe an alternative: impose an embargo on offshore oil supplies from Russia, but keep pipeline supplies. However, Brussels did not agree to this seemingly compromise path.
“The second option is when the importer shifts the import duty to the supplier. This is exactly what they planned to do with the carbon tax. Its supporters said that European importers should pay the tax, but they forgot to add that the Europeans were going to pass it on to suppliers. Thus, the carbon tax introduced by the European Union became a tax for Russia,” explains Mitrahovich.
Actually, the export duty, which is paid by Russian exporters and which goes to the budget of the Russian Federation, is actually also shifted to the buyer (with the exception of Belarus, which buys Russian oil cheaper than the market).
If the EU introduces a duty on oil imports from Russia and shifts it onto the shoulders of Russian oilmen, the question arises: will Moscow agree to this? Mitrahovich points out that Poland and Brussels seem to proceed from the fact that Russia will not go anywhere and will agree to the new rules of the game. However, Brussels’ calculation is incorrect, the expert believes.
“What is the point of selling oil at an even higher price? What for traders because of the imposed duty, if it is better to send this oil to the Asian markets? Moreover, if it comes to a shortage of Russian oil in Europe, then the cost of a barrel will rise sharply,” says Mitrahovich. This means that Russian oil companies will be able to make good money in the Asian market, even selling oil at a discount.
“Now in Russia there is a drop in production by 1 million barrels per day, this is 10% of what we produce. If not 10% falls, but, for example, 25–30%, then there will be a significant increase in oil prices,” the FNEB expert points out.
With regard to setting marginal oil prices, there was no such precedent in the world. In essence, the EU will cross out the market pricing mechanism and set the price arbitrarily.
“Forget about stock trading. What is important is simply the desire of the EU, which will directively set the price for Russian oil, just like in the planned economy in North Korea,” notes Mitrahovich.
In his opinion, Russia is unlikely to agree to such conditions and, rather, will stop oil supplies. In the gas sector, the refusal to pay for deliveries in rubles by a number of European countries led to Gazprom shutting off the valve to these countries (these are the same Poland, Bulgaria and now Finland).
“At the very least, Russia will temporarily stop supplies and will negotiate with Europe to resume them. This is a much more likely scenario,” the source said.
Moreover, European politicians are well aware of this, which is why quite obvious ideas with the introduction of duties have not yet been put into practice.
Olga Samofalova, VIEW
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