- Europe has vowed to dramatically reduce its dependence on Russian oil and gas by the end of the year.
- Russia supplies as much as 40% of the EU’s energy needs.
- Russia has shown considerable resilience to sanctions on oil as both China and India have increased purchases in tandem with Europe’s bans.
Russia is reducing exports of natural gas to multiple EU countries
The EU’s ban was oil and ship focused because they cannot find an alternative source for natural gas that would resolve shortages if they banned everything. Germany in particular would be destroyed by the loss of natural gas supplies from Russia with its 42% dependency.
Increased production is a fantasy
The problem is that increased production is a fantasy stifled by the realities of labor shortages, increased drilling costs due to inflation and shortages in raw materials caused by supply chain disruptions. There is little chance that production capacity will ever be able to match EU demands, according to experts in the drilling industry.
So what does this mean?
It means that in order for Europe to fulfill its energy needs while banning its primary import source, the union will have to leach existing supplies from the global market. In other words, supplies will be greatly reduced in the West and prices are about to spike exponentially in order to feed the EU.
Russia has shown considerable resilience to sanctions
Both China and India have increased purchases in tandem with Europe’s bans. The wider implication of this is that Europe and the West will be facing reduced global oil supplies and paying a premium while countries like China and India will be enjoying increased supplies and lower prices from Russia.
Oil & Gas Prices at 8am
WTI Crude • 119.0 +0.13 +0.11%
Brent Crude • 119.8 +0.13 +0.11%
Natural Gas • 8.992 +0.469 +5.50%