OPINION
Market Rating Before FOMC MeetingJan 31
Where Will the Energy Crisis on the EU – Russia Line Lead To?
The crisis, which emerged with Russia's demand for the energy provided to Europe to be paid in rubles in retaliation for the harsh sanctions imposed by western countries, continues with the European Union (EU) Commission's rejection and a new sanction attempt.
Due to the EU's dependence on Russian gas and oil, the costs of the Russia-Ukraine War are expected to be heavy in the coming period. In this context, it is calculated that the EU's current natural gas use plan may cost more than 250 billion euros by 2030 due to high prices.
However, EU countries cannot find the courage to take concrete steps as they have not been successful in reducing their dependence on Russian energy. As a matter of fact, the EU, which is almost handcuffed to Russia with natural gas pipelines, and the Energy Ministers of the countries in the region, which are negotiating to end oil and natural gas purchases from Russia, have difficulty in reaching a consensus on this issue.
6th Enforcement Package
While it is reported that the EU pays Russia 450 million dollars for daily oil and 400 million dollars for natural gas, it is noteworthy that more than 47 billion euros have been transferred to the Moscow administration for energy supply since the beginning of the Russia-Ukraine war on February 24.
In mid-April, EU Foreign Ministers discussed the 6th package of sanctions against Russia, which invaded Ukraine, in Luxembourg. While no specific result came out of the table, EU High Representative for Foreign Relations and Security Policy Josep Borrell stated that although the prohibition of oil imports from Russia was discussed, many countries in the EU were dependent on Russian oil and it did not seem easy at this stage to adopt a common stance on this issue.
Then, the EU member states, which reconvened at the beginning of May, sent an "embargo" message to Moscow, agreeing on the 6th sanctions package aimed at "stopping the import of refined products, as well as Russian crude oil after 6 months, by the end of the year". However, the ambassadors of the 27 EU member states failed to agree on the sixth of the new sanctions that will target Russia.
Veto from Hungary
Hungary was a major obstacle to the implementation of the 6th sanctions package, which continued with great excitement. Countries such as Slovakia, the Czech Republic and Bulgaria also have relative support. Hungarian Prime Minister Viktor Orban pointed out that they are extremely dependent on Russian energy on this issue and stated that the adoption of the embargo will have a bomb effect on the economy of countries like these and they will veto the said sanctions package.
Finally, the EU member states, which met in Brussels the other day, could not reach a consensus on the sanctions package, which envisaged the prohibition of oil imports from Russia. EU High Representative for Foreign Relations and Security Policy Josep Borrell regretted that they were unable to finalize this issue, but said, "We will continue to impose sanctions on Russia until the cost of the invasion becomes intolerable." Using his words, he emphasized that they continue to discuss the 6th sanctions package.
The 195 Billion Euro Plan
The EU is preparing a new strategy to reduce imports of natural gas, coal and oil from Russia. This is part of an effort to accelerate the transition to renewable energy and diversify the resources of its international partners. Sources close to the issue said the EU is preparing a plan worth 195 billion euros to reduce dependence on energy imports from Russia and promote renewable energy projects by 2027. It was announced that the said package will be adopted on May 18, but the Commission has not yet commented on the details of the package.
On the other hand, negotiations between the European Union and Iran continue within the scope of the nuclear deal. While it is announced on the EU side that the attempts to implement a nuclear agreement with world powers are going well, Iran may return to the international oil markets if the agreement is reached.
If the EU agrees on a possible energy embargo, oil prices are likely to react upwards as a first reflex, with supply concerns. However, it is possible to say that this support in oil may be limited if new actors such as Iran join the European energy market.
