Oil prices could shoot up to a record $185 per barrel if the European Union acts to impose a full immediate ban on imports of Russian oil, JPMorgan says.
The EU has started tentative discussions on potentially imposing an embargo on Russian oil, but the bloc is still split on a ban on Russian energy imports. The biggest European economy—Germany—continues to resist an immediate oil embargo for now, saying an oil ban would plunge Germany, and Europe, into a deep recession. Germany, Hungary, and Austria, as well as some other EU members, continue to resist an immediate outright ban on Russian oil, although Germany signaled earlier this month that it could end its dependence on Russian oil this year.
If the EU escalates embargoes in the sixth package of sanctions against Russia over its invasion of Ukraine and decides to impose a full immediate embargo on Russian oil, then Brent Crude prices could soar by 65 percent to as much as $185 per barrel, Natasha Kaneva, Head of Global Commodities Strategy at J.P. Morgan, says, as carried by Bloomberg.
A full immediate ban would cut over 4 million barrels per day (bpd) of Russian supply, and China and India wouldn’t be able to absorb all those volumes very soon, Kaneva added.
Still, an immediate EU ban is not JPMorgan’s base-case scenario—the investment bank sees 2.1 million bpd of Russian supply to Europe cut. If the EU imposes a gradual phase-out ban on Russian oil over several months, as it did with the ban on Russian coal imports, adopted in early April but effective only from August, this would not impact oil prices as much, JPMorgan’s Kaneva says.
An EU embargo on Russian oil imports may be in the works, but drafting and preparing for such a ban would likely take “several months,” European officials told AFP last week.
A ban is in the works at the EU level, France’s Finance Minister Bruno Le Maire said today.
“I hope that in the weeks to come we will convince our European partners to stop importing Russian oil,” the minister told Europe 1 radio on Tuesday.
By Tsvetana Paraskova for Oilprice.com
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At an average Brent crude price of $100 a barrel, the EU’s annualized oil import bill from Russia amounts to $182.50 bn. Were the EU to sanction Russian imports, its annualized import bill will rise to $255.50 based on a Brent crude of $140 thus adding $73 bn to its import bill, a sum the shrinking EU economy could ill afford. Even OPEC+ warned the EU against taking such a rash action.
However, the real problem for the EU isn’t the extra $73 bn but where to find a replacement for Russian oil.
There is no one single oil producer or a group of producers including OPEC+ and US shale oil that can replace Russian oil and products exports of 8.0 mbd or even half that volume now or for the foreseeable future.
While sanctioning Russian oil imports will please the hot heads inside the EU, it will still amount to the EU cutting its nose to spite its face according to the proverbial saying. Meanwhile, Russia’s budget surplus is getting bigger by the day.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London