Will Russia budget burst if the EU imposes an oil embargo? financial analytics

Will Russia budget burst if the EU imposes an oil embargo? financial analytics

This short week between the May holidays was marked by the expectation of a new package of sanctions, which will indicate the position on the oil embargo from the EU. Is it possible? How much will our oil cost, and how will the situation affect our budget? We are sorting it out. Will Russia budget burst if the EU imposes an oil embargo?

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The European Commission is increasingly saying that Europe will abandon all Russian energy resources by the end of the year. In Russia, they say that they will stretch their legs there sooner. But as a result, it seems more that we will stretch our legs sooner.

The most popular and important customer of oil and gas from Russia is Germany. But just now she declares that by the New Year she will not use gas or oil from the Russian Federation. And other countries are already refusing — Bulgaria, Poland, Finland. Well, the Baltic countries to the heap.

Italy is still holding out among buyers. According to the volume of purchases, it is the second country in the list after Germany. But again, the rhetoric of the government does not allow us to doubt that Rome, if it wants, will survive the summer without air conditioning.

China is third on the list — accordingly, it will not support the embargo, it is not Europe. But you need to understand that the power of Siberia’s power is already at the limit. Even if Beijing wants to buy more energy resources, they need to be delivered somehow. And at a price that Russia will not be so profitable.

In summary, I will say — yes, the oil embargo is becoming a real threat. Neither China nor India will refocus the vacated capacities on themselves. Even if the embargo is partial, we risk losing up to a third of the revenue to the treasury. Production will have to be preserved, and this is a reduction in jobs. It seems that it is worth starting to show flexibility and negotiate with our “partners”.

There is an opinion in the EU that many countries have the opportunity to abandon Russian oil. I shared my thoughts on this topic on Wednesday. In short, a divorce with ru oil can be arranged relatively easily for several reasons:

A) Most of the oil enters the EU by tankers;

B) This oil can be bought from other suppliers;

C) It is easy to establish new transport links.

It would seem that it is possible to declare an embargo at least tomorrow, but in reality it does not work that way.

To declare an embargo, a consensus of 25 countries is needed, of which 23 will agree with the embargo. Unanimity is already in question — Slovakia offers to wait until 2025, and Hungary is thinking of vetoing such an initiative.

Getting oil into the EU is one thing, but making fuel from this oil at refineries is another.

Most of the refineries in Europe are designed for processing the Russian Urals grade of oil. Lighter varieties, like Brent, require a different process. This is a matter of restructuring production processes, but no more.

In the event of an embargo, the price per barrel will jump for 120+ dollars. Russia will also suffer from such a price increase. There is already less oil supplied to the EU, and Russia sells oil to other countries at a discount of 35-40%.

In the event of an increase in oil prices, while maintaining the discount, Russia will receive more income, or increase the discount.

Such feints will make the price of Russian oil more attractive, but this is a payment for the risk of secondary sanctions.

What will happen to the budget of the Russian Federation

According to the calculations of the Financial Times, for the budget of the Russian Federation, the lower threshold of comfort is at the level of 41-44 dollars per barrel. All the money that Russia receives above this indicator can be considered windfall. And if you have to sell oil cheaper, there will be holes in the budget and you will have to look for funds to cover expenses in other ways.


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Leading economic and political commentator. Editor-in-chief of the online magazine Realize a Dream. Alexey Ponomarenko

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