The price of oil continued to rise after the oil embargo against Russia was decided. An undesirable side effect, as the sanctions were primarily intended to punish Russia. What does that mean for consumers now?
When Russia invaded Ukraine, sanctions against the aggressor came very quickly. Within a few weeks, several packages of sanctions intended to isolate and reverse Russia were passed. In the meantime the situation has become deadlocked. Russian troops continue to rampage in Ukraine, and the West has no choice but to seize Russian oligarchs’ yachts. But this is of little help to Ukraine.
All that remained was an oil embargo, which the member states had been arguing about for some time. Resistance came mainly from Eastern Europe. Now the government officials have gotten through to it. The result was a compromise, much to the satisfaction of Hungarian Prime Minister Viktor Orban. The EU no longer wants to import tanker oil from Russia in the future. Imports through pipelines are still allowed for the time being. That was what Hungary had asked for.
According to EU Council President Charles Michel, two-thirds of Russian oil supplies are said to be affected by the embargo. However, the new sanction is also at the expense of Western consumers. Oil prices rose to their highest level in two months on Tuesday. In the morning, a barrel (159 liters) of North Sea Brent cost US$ 123.32. That was $1.65 more than the day before.
The reason for this is the now reduced supply from Russia. According to brokers, a statement by Commission President Ursula von der Leyen is said to have driven prices up. Accordingly, the EU’s oil imports are to be reduced by a total of 90 percent by the end of the year.
Are fuel prices exploding because of the oil embargo?
“It is not foreseeable how the oil price, which has risen today, will develop in the next few months,” says Thomas Engelke, head of energy and construction at the Federal Association of Consumer Organizations (VZBV), the star. It is also unclear how long prices will go up. That also depends on “when there will be a solution in Ukraine,” says the general manager of the Fuels and Energy Business Association, Adrian Willig, to the stern. However, he attributes the sharp rise in gasoline prices not only to the Ukraine war, but also to a global “gas shortage caused by the United States.”
However, the fuel discount that has now been decided could dominate from June 1, “so that the prices at the gas station will fall,” estimates the Düsseldorf economist Jens Südekum. In order to relieve consumers, especially when it comes to fuel prices, the consumer advice center had already called in spring for the commuter allowance to be replaced with a mobility allowance independent of income and for price increases in public transport to be stopped for the time being. The federal government has already complied with this.
The tank discount is part of the federal government’s relief package. From Wednesday until the end of August, the tax burden on fuel will decrease by 35.2 cents per liter for premium petrol and 16.7 cents per liter for diesel. Will that offset the effect of the oil embargo? “In previous similar decisions, we saw that only 60 percent of such tax cuts were passed on to consumers. Now that both are coming together – oil embargo and fuel rebate – it will probably only be possible to forensically understand how prices have developed in retrospect.” , says Südekum.
Fatih Birol, head of the International Energy Agency (IEA), estimates that the main holiday season in summer could exacerbate the fuel shortage. In the summer, the demand for fuel in Europe and the United States will increase, he told the “Spiegel”. Then there could be bottlenecks. The European countries are “not only dependent on crude oil supplies from outside, but also on imports of oil products”.
Rising electricity costs in private households?
According to the consumer advice center, private households could also benefit from the announced reduction in the EEG surcharge in the summer for electricity – provided that the providers pass on the cost reduction. The consumer advice center advises consumers with a long-term guaranteed electricity price not to switch providers. Conversely, consumers with unfavorable tariffs should look for alternatives. The consumer advice center in Rhineland-Palatinate also recommends saving energy. It would be conceivable, for example, to change the energy source, for example from gas and oil to electricity (heat pumps), wood pellets and local and district heating based on renewable energies.
“Should there be another significant price increase in oil and gas for private households in Germany, the federal government would have to decide on a third relief package,” said VZBV representative Engelke. However, he left it open how this could look like.
With regard to the energy supply, however, the consumer advice center is trying to calm things down. Federal Minister of Economics Habeck had already announced that he wanted to replace the Russian oil supplies with other sources. “If that succeeds, there should be no supply bottlenecks, for example with heating oil,” said Engelke.
Oil embargo could hit East Germany hard
Within Germany, the phasing out of Russian oil imports could challenge the Leuna and Schwedt refineries in particular, predicts Adrian WIllig from the Fuels and Energy trade association. “East Germans mustn’t be the victims of the embargo policy,” warns the Left Party’s East German commissioner, Sören Pellmann. The “Druschba” pipeline arrives in the east German city of Schwedt, supplying two-thirds of Russia’s oil imports before the war. However, Germany had already made it clear beforehand that pipeline imports should also be ended.
“Without an exception, the East German economy could be thrown back years. East Germans would simply become poorer as a result of further price increases,” warned Pellmann. He called for a prudent sanctions policy to reduce the billions in Russian income that Putin also has at his disposal for the war in Ukraine. The Fuels and Energy trade association therefore welcomes “the fact that the federal government, together with the Polish government, is working in working groups with experts from the companies on how the supply situation in eastern Germany and Poland can be optimized overall,” says Willig the stern.
Similar to Hungary’s Prime Minister, Schwedt’s Mayor Annekathrin Hoppe (SPD) was relieved in view of the compromise for an oil embargo. “As long as the oil comes to us, as long as we are allowed to process the Russian oil here in Schwedt, nothing will change and everything is still going well,” she said in an interview with “Bayerischer Rundfunk”. The PCK refinery in Schwedt produces a large part of the petroleum products for East Germany. The opportunities that have existed for Germany since last night could be used for a longer transition period to exit crude oil processing.
Alternatives to Russian Crude Oil
The Druzhba pipeline for Russian oil ends in Schwedt, from where large parts of eastern Germany in particular are supplied with oil products. The refinery belongs to the Russian group Rosneft and is the most important supplier of petroleum products in the Berlin-Brandenburg area. According to the IGBCE union, around 1,200 people work in the PCK refinery, plus several hundred jobs at suppliers.
However, Mayor Hoppe does not believe that Russian crude oil will continue to be processed at this location in the future. “That means “that we need alternatives,” said Hoppe. Specifically, she’s thinking of the production of hydrogen, for example.
Since the beginning of the war in Ukraine, the share of Russian energy sources consumed in Germany has fallen massively. According to Economics Minister Robert Habeck, it was 35 percent before the war, but it has now fallen to 12 percent.
Sources: Federal Association of Consumer Advice Centers, with material from DPA and AFP
