The shortcomings of sanctions in a globally interconnected economy have come to the fore since Russia invaded Ukraine. While a country like Germany was happy to say all the right things and seize the world’s largest super yacht, they have been unable to sanction Russia where it would hurt – cutting off oil and gas imports. The harm to their own economy would be greater than any harm to Russia’s. This article outlines some of the numbers behind this challenge.
Russia is the world’s second largest oil exporter, sending 5 million barrels a day to Europe which accounts for 30-40% of Europe’s petroleum consumption. And Russian gas accounts for 38% of Europe’s gas consumption. Quite simply, Europe is too dependent on Russian oil and gas to add it to the sanctions list.
As Russia’s invasion of Ukraine continues, it appears European leaders are starting to come around to the need to sanction Russian oil and gas. And this is where it gets complicated for both sides. While we talk about total numbers (i.e. 5 million barrels per day) the reality of oil and gas markets are an interconnected network of pipelines, trade routes and refineries, many of which are interoperable. For example, a European oil refinery that relies on a pipeline from Russia may find it logistically difficult to substitute the pipeline for another source of crude oil. Similarly, Russian gas exports to Europe that travel through established pipelines cannot easily be rerouted to China.
This article takes a look at the details of the interconnected web of pipelines, trade routes and refineries to explore what would happen if Europe takes the step of cutting off imports of Russian oil and gas. In the case of oil, they estimate that an initial loss of 3 million barrels per day would decrease over time to a permanent loss of 2 million barrels per day. Given that Europe currently consumes 14 million barrels per day, this is a sizeable loss and will push up prices across Europe. Which is why German authorities have been a lot quicker to seize super yachts than to ban Russian energy imports.
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