“That means the embargo is already being implemented, step by step,” Robert Habeck, Germany’s economy minister, said on Monday.
The Russia-Ukraine War and the Global Economy
While oil is spoken of as a single commodity, there are many types with different characteristics, and refineries are often configured to run certain grades of crude. Switching away from Russian oil may involve costs if the fuel can even be found, analysts say.
Zsolt Hernadi, the head of MOL, a large Hungarian oil company, recently said it could require up to four years and $700 million to recalibrate his company’s refineries in the event of an embargo on Russian oil.
Analysts say an embargo could trigger a costly competition for alternative sources of oil.
Viktor Katona, an oil expert at Kpler, which tracks energy flows, said that of the substitutes potentially available for Russian oil, only Saudi output was a good fit. So far the Saudis, who will lead an OPEC Plus meeting on Thursday, have shown little inclination to increase their output more than incrementally. Mr. Katona said Iranian oil might also work, but sanctions imposed by the United States continue to crimp Iran’s fuel sales. Oil from Venezuela, which is also crimped by sanctions, is often mentioned as a possible swap for Russian crude.
Strains are already showing up in the market for diesel, which is used by both ordinary drivers and truckers. Diesel is in short supply because European distributors are wary of buying refined products from Russia, which once supplied large volumes of the fuel to Europe. Diesel is selling for the equivalent of about $170 a barrel, well above the $107-a-barrel futures price of Brent crude, the international standard, and Mr. Katona expects the price to keep going up. At the pump, diesel prices in Britain are up more than 35 percent over the last 12 months, according to the RAC, a motorists’ club.
An embargo is “going to inflict tangible pain on the European refiner and, in consequence, on the European customer,” Mr. Katona said.