- Question: The President of the European Commission, Ursula Von der Leyen, has announced that the EU will propose an embargo on Russian oil to "make Vladimir Putin pay a high price".  According to some analysts, however, the price mechanisms on the world oil markets could limit the impact of this embargo on the Russian economy. Is the European Commission deluding itself about the effect the decision could have? Can the market mechanism partially protect Russia? 

Russia plays an important role in the oil markets. The world oil consumption is 100 million barrels per day. Russia recently produced a little over 10 million barrels per day and exported nearly 8 million barrels per day in the form of crude oil and refined products (gasoline, diesel in particular). Since the invasion of Ukraine, due to the threat of American sanctions, and also due to logistical difficulties for exports from the Black Sea, Russian exports have decreased significantly in recent weeks.

More than half of Russian oil exports are destined for Europe. An embargo would obviously have major consequences for Russia and Europe

Russia, as it is already doing, could export more oil to India and China. However, in order to export its oil, Russia has to grant significant discounts to its customers. If the price of Brent oil, the world's benchmark crude, is around $110, Russia must export its crude at $70 or $80 per barrel, the maximum price accepted by customers, taking into account the origin of the crude or the products and the risks incurred by the buyers

Oil export revenues have accounted for about 50% of Russia's export revenues in recent years under normal circumstances. A European embargo could have a twofold effect: it could physically reduce the quantities of oil exported by Russia (by a few million barrels per day) due to difficulties in finding customers, but it could also increase the price of oil, due to the reduced availability of oil on the markets.

The regulation of the market is in the hands of an organization that includes OPEC (Organization of the Petroleum Exporting Countries, whose members are the producing countries of the Persian Gulf, Africa and South America) and now another group of producing countries including Russia. These countries regularly increase their production to meet the needs of a market where consumption is growing, but production increases remain very limited. Countries such as Saudi Arabia and the United Arab Emirates could undoubtedly increase their production significantly, but their relations with Russia encourage them to be moderate.

In short, a European embargo would reduce Russian exports but could lead to higher prices. All in all, Russian revenues could be only moderately affected.

- Question: is it possible that, paradoxically, European economies will suffer more from this decision than Russia itself? Could this European embargo on Russian oil turn against other countries and suffocate their economies?

The risk of an embargo is indeed a decrease in the availability of oil and therefore an increase in prices. Prices on international markets react very quickly to a small imbalance between supply and demand

The decision of the United States (and other Western countries) members of the IEA (International Energy Agency) to put on the market quantities of oil available in security stocks aims to increase availability. Security stocks, also known as strategic stocks, in most industrialized countries, require operators to have reserves equivalent to three months of their sales. This decision will ease the tensions on the markets for a few months.

- Question: what could be the concrete consequences in Western countries?

The embargo on Russian imports, if implemented, will be gradual. Strategic stocks will also be able to mitigate the consequences of the embargo. Finally, as we have indicated, there is additional production capacity in producer countries such as Saudi Arabia, the United Arab Emirates and a few other countries. The United States is reducing the sanctions on Venezuela, an important producer country, which could allow a recovery of oil production in this country where extractions have collapsed in recent years. Finally, a lifting of sanctions against Iran, reinstated by Donald Trump but which the Biden administration could alleviate, would allow increased production in Iran and therefore lower prices.

- Question: does this mean that the decision to embargo Russian oil is a mistake?

Russian oil and gas exports are the main resources of this country. The collapse of the USSR in 1990 is attributed to the collapse of oil prices a few years earlier, which led the Russian economy to bankruptcy. Mikhail Gorbachev was forced to put the key under the mat for lack of resources.

European embargoes on Russian gas and oil will have serious consequences for European countries. For gas, replacing Russian imports is difficult for the moment and can only be done gradually. For oil, there are sources of supply that could make it possible to replace Russian oil. The quantities of Russian oil imported by China and India will become available in the Middle East.

The Americans are self-sufficient in energy. On the other hand, the Europeans will have to negotiate with the producing countries to find additional sources of supply.