A partial oil boycott, which will take effect at the end of the year, proved to be the most feasible for the EU after lengthy negotiations. Experts who spoke to NU.nl still call it a major step that will restore the credibility of the EU. But whether it will work will depend on tackling shortcuts for Russian oil and reducing the amount of oil we use.
The supply of Russian oil will not be largely stopped until December. That means that the Kremlin will still receive a lot of money for the time being and this boycott will not have a direct effect on the war in Ukraine, geopolitics expert Edward Hunter Christie expects.
“Only military support and direct economic measures will help against this. But this is ultimately very bad news for Russia.”
The Russian economy is under increasing pressure. The Institute of International Finance (IFF) predicted last week that due to other sanctions, it will already fall by 30 percent in 2022. “And that while energy revenues are still high. That will eventually disappear.”
Russian President Vladimir Putin is therefore losing the ability to use energy as a weapon, says Christie, who previously worked for NATO and now works for the Finnish Institute of International Affairs. According to him, the EU has a lever in its hands. “Hopefully this can be used in the long term to force Moscow to return to more civilized behavior.”
‘Now ban insuring Russian oil’
The sanction package is not finished with a unilateral oil boycott, warns Rem Korteweg of think tank Clingendael. “The European Union must act now. Sanctions must follow against oil tankers and insurers involved in evasive oil transports.”
This is to prevent large amounts of Russian oil from being dumped in Asia. According to Korteweg, experiences with previous oil boycotts show that insurers play a key role in countering such waterbed effects. “If the EU does not do that, then this measure is mainly symbolic, because then a large part of the oil will simply be sold elsewhere.”
Bypassing oil shipments can be tackled with additional sanctions, also says Craig Kennedy, an expert on the Russian oil industry at Harvard University. According to Kennedy, circumventing that is more difficult for Russia than many people think. The only pipeline to China is already at maximum capacity and Russia needs thirteen times as many oil tankers to get the same amount of oil into Asia.
“Russia does not have those ships itself and is therefore dependent on the international merchant fleet. And that in turn depends on European insurers, who guarantee 95 percent of the transports. The EU must therefore first of all prohibit insuring Russian oil, regardless of the destination.”
In addition, according to Kennedy, strict enforcement is needed to prevent Russian oil from being sold under a different flag. “If the EU keeps a close eye on overseas shipments and introduces an insurance ban, it will be very difficult for Moscow to divert or smuggle more than a fraction of its exports into Europe.”
He calls it disappointing that the boycott will only take effect at the end of 2022. Russia will receive tens of billions of euros before that time and will have a lot of time to try to ensure oil transports elsewhere. Kennedy believes that the EU should therefore consider an import tax in the meantime.
‘Absolutely not to lower the excise tax further’
In addition, we now have to reduce our own oil consumption as much as possible, says energy expert Kees van der Leun of Common Futures. “In principle, the boycott is a good thing, but it will not come into full effect until December. This means that not only will a large flow of money to Russia continue to exist, but also the possibility that Russia will suddenly stop the supply before that time, as the Netherlands is now experiencing with natural gas.”
According to Van der Leun, in order to be prepared for this, it is essential that the Netherlands also has as much oil as possible in addition to gas saves, so that we are less vulnerable. Savings are also important in reducing the overstrained oil price, thinks Van der Leun.
“What we absolutely must not do is further reduce the fuel tax. That gives demand a boost, and in a tight market that always leads to price increases, which means that we as a whole are actually more expensive.”
In any case, the EU has regained credibility with the oil boycott, Christie concludes. “It shows that, despite divisions and after an embarrassing period of hesitation, the EU is still able to take important action on the global stage.”
