Will the oil embargo have “cataclysmic consequences”?

Will the oil embargo have “cataclysmic consequences”?

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While prices at the pump again passed the 2 euro mark last week for gasoline and diesel is approaching this bar, Marine Le Pen goes on the attack in the media against the embargo on Russian oil . It is a “stupid” sanction, she estimated on Europe 1 on Wednesday June 8, arguing that Russia will sell to other countries and will be “richer afterwards”.

The outgoing deputy of the National Rally is mainly attacking a decision which “will have consequences on the lives of the French”, she declared. On France Info, the day before, she added that “the fact that there is a supply disruption will increase the price of oil”. Taking the example of a price seen on the highway at 2.40 euros per litre, she points out that “it is unaffordable for a large majority of French people. Some will lose their jobs, no longer use their car”. On June 1, she denounced the “cataclysmic consequences” of this decision on purchasing power.

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Let us first specify that these high prices take into account the rebate of 18 cents per liter (in mainland France) set up by the government. Emmanuel Macron recently announced that it would be extended in August, when it was originally supposed to end at the end of July. Unleaded is also more expensive at the moment due to very high demand from the United States, which is preparing for the summer driving season. But with the implementation of the embargo, will the surge continue?

On June 3, the EU agreed to a gradual embargo on most Russian oil to cut off funding for the war against Ukraine. The cessation of imports by ship of crude oil will take place within six months and that of petroleum products within eight months. Supply via the Druzhba pipeline can, however, continue “temporarily”, but without a deadline. In particular, it supplies three countries without access to the sea, Hungary, Slovakia and the Czech Republic.

France imports crude oil and diesel from Russia

“According to our information, a certain latitude will be left to the Member States, explains Olivier Gantois, president of the French Union of Petroleum Industries, Energy and Mobility (Ufip EM), professional union of energy supplier companies. In France, we will have until the end of 2022 to replace Russian oil imports with imports from elsewhere. France imports crude oil and diesel from Russia, but not gasoline. In 2019, 17% of diesel and 13% of crude oil came from Russia. Europe is more dependent: half of diesel imports were imported from Russia in 2019, according to Ufip EM.

“If we are given six months to organize ourselves, this will prevent an embargo from resulting in a shortage of oil in France”, estimates Olivier Gantois, indicating that the oil would undoubtedly be imported from the Middle East, from North America or from India. Regarding the rise in prices, the president of Ufip EM remains cautious and does not give estimates due to uncertainties over the coming months. “It also depends on the game of communicating vase that will be able to take place: Russian oil, instead of going to Europe, would go to China or India, which displaces barrels that would come to Europe, he continues. Is that going to play full? The answer to this question will depend on the additional increase that we could have as the embargo comes into effect. »

“We already have an effect of the fear of an embargo” on the price of a barrel

He adds, however, that since March the oil market has already priced in concerns around an embargo. “Today, in the price, which is very high [environ 121 dollars le baril de pétrole brut], we already have a war effect in Ukraine and the fear of an embargo. »

Pressure on prices is “probable”, supports, for its part, the French Institute of Petroleum New Energies (IFP EN) in a note published on June 7. OPEC +, the organization of petroleum exporting countries and their partners, decided in early June to increase its supply, but this recourse will reduce reserve capacities. This situation is “likely to lead to price pressure and volatility,” the note explains. The explosion in energy prices (gas, oil, electricity) could last until the end of the year, or even continue in 2023, predicts the Institute.

Lots of “uncertainties”

In March, in its macroeconomic projections, the Banque de France assumed a price per barrel of 125 dollars for the year 2022 in a degraded scenario. The institution must revise its assumptions and will unveil them at the end of June. On 9th June the European Central Bank published its quarterly projections: in pessimistic scenarios taking into account the uncertainties of the war in Ukraine and the embargo on Russian oil, the price of a barrel would fluctuate between just over 100 dollars and up to more than 140 dollars over the year 2022. In a very pessimistic scenario, the barrel would be close to 180 dollars in 2023.

Several events could impact the price of a barrel in the coming months: “China could regain economic vigor after the end of the confinements, which would cause prices to rise, explains the president of Ufip EM. There could be a supply problem in other countries which would make oil scarce or, on the contrary, production elsewhere than in Russia could increase more than expected, which would have the effect of easing prices. “There are a lot of uncertainties,” underlines Olivier Gantois.

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