Ukraine continues to be under attack by Russia, a hundred days after President Putin ordered his troops to cross the border, flouting international laws. The war in Ukraine has had a significant impact on the global economy. Fuel and food prices have touched record highs. Rising fertilizer prices have threatened to derail entire agro-based communities, and the stock markets continue to deal with aftershocks.
However, the global repercussions of the war seem to be filling President Putin’s coffers, not draining them. Russia is minting money off the record-high fuel and food prices. Despite diplomatic calls to curtail trade with the aggressor, Moscow continues to find buyers and orders for larger volumes.
So far, the West’s salvo of sanctions seems to have done little to hurt President Putin’s war chest. But, now the European Union is gearing up to hit Moscow where it hurts the most – oil imports.
The EU is preparing to ban Russian oil imports via international waters by the end of the year. The proposal sends a clear message that Europe is coming together to end the aggression and is willing to bear the cost of exorbitant fuel prices and resulting inflation. Considering that Europe relies on Russia for about half of its energy supplies, to the tune of about $10 billion a month, the move will significantly impact Russian economics.
In a severe blow to Russian oil companies, the EU proposes blocking insurers from covering tankers that carry Russian oil anywhere. This would significantly impact Russia’s plans to make up for the shortfall in European demand by supplying Asian countries.
In turn, Russian oil refineries will be forced to cut production. Without insurance, oil firms will find it difficult to transport oil over the high seas and will have to resort to shutting down at least some rigs. The measure will have long-term implications for the sector as most of the existing production facilities are not designed for deep production cuts and the old rigs are expensive to shut down and restart. Therefore, it is highly likely that rigs that will be forced to shut down now may never be restarted again.
Though it has taken months and many internal debates, the EU is close to making its stiff stance against the Ukraine invasion clear. So as not to create utter chaos in the economy, the EU has kept natural gas out of the sanctions list, as it is harder to replace. It has also had to concede to leave out oil transported through pipelines to appease landlocked members like Hungary. The country had also demanded that it be permitted to sell Russian oil transported through the pipelines.
It was not Europe’s skewed and vulnerable dependence on Russian energy alone that prevented the Union from imposing tough sanctions against Moscow. Some EU members, like Hungarian Prime Minister Viktor Orban, foster deep ties with the Kremlin. It would not be wrong to say that President Putin’s allies within the EU have hampered efforts to punish the autocratic leader by stalling a unanimous decision.
Earlier this week, we brought into focus the irony of Russia having a seat at the UN Security Council and what it could mean for the august body’s functioning. Reports that Mr. Orban has raised further objections by opposing the sanctioning of Patriarch Kirill, head of the Russian Orthodox Church, are creating unease in diplomatic circles. It is imperative that the EU put forth a unanimous and united front in its efforts to punish President Putin. Moscow will exploit even the tiniest crack to divide Europe.
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