EU Energy Talks

In this interview with Yalda Hakim from BBC World News, Dr Carole Nakhle, CEO of Crystol Energy, discusses the EU plan to phase out Russian oil by the end of 2022.

Dr Nakhle says that Germany is the largest economy in the European Union, its largest consumer of oil and gas and captures significant volumes of Russian energy exports. However, within a month, Germany changed its position from describing banning Russian oil and gas exports as ‘red line’ in April to supporting a gradual phasing out of those exports by the end of this year. This by itself has given the signal that the ban will go ahead.

A ban immediately effective carries a major economic cost let alone is technically difficult for some EU countries. Besides, in energy, phasing out energy supplies by the end of 2022 is relatively a short period as energy projects span over years. A gradual phase out is sensible since it will give countries the time to find alternatives and avoid a drastic increase in prices.

However, even if Russia cannot send any oil and gas to the EU, oil and gas revenues will continue to flow to the government coffers – albeit at a smaller scale – since half of the world, including the biggest energy importers, have not imposed any sanctions on Russia.

Since the 1990s, the EU has done a good job in decreasing its reliance on Russian fossil fuels and what is happening today will only accelerate the transition the trend. While in the short term, the EU might be in a desperate situation to find alternatives, Russia will be the biggest loser in the long term as it will lose its biggest market.

Related Analysis

“Sanctions and the Economic Consequences of Higher Oil Prices“, Christof Rühl, Apr 2022

“Energy Markets and the Design of Sanctions on Russia“, Christof Rühl, Mar 2022