Europe can endure painful transition to live without Russian oil

The European Union would endure a short and painful transition if it halted Russian oil and coal imports, but with the help of its international partners the bloc could end its dependence on Moscow, a new study shows.

While the EU has refrained from joining the U.S. banning the fuel, it remains an option as sanctions are tightened on Russia following its invasion on Ukraine. Drawing analogies with actions taken during World War II, governments in the 27-nation bloc should start planning to reduce demand to ensure a smooth transition to an economy without Russian oil, the Brussels-based Bruegel think-tank said in a study seen by Bloomberg News.

“Europe can live without Russian oil and coal supplies, but significant logistical problems will have to be tackled to lessen the impacts of such scenario,” said Simone Tagliapietra, researcher at Bruegel and one of the authors of the study. “International coordination, namely between Europe, the United States and major oil and coal producing countries, will be key to secure an orderly management of the situation.”

Shipments could be halted by the Kremlin in a political threat to European energy security, it said.

Europe should forge a Trans-Atlantic Energy Pact with President Joe Biden to tap spare U.S. capacity to compensate for lost Russian volumes. Joint diplomatic outreach to OPEC producers could also help navigate through the stormy period after Russian flows are halted.

Should Russian-EU oil trade be halted, around 3 million barrels per day of the country’s crude and about 1 million barrels per day of products would be taken offline, constituting a serious global supply shock, Bruegel said. Russian crude accounted for almost 30% of EU oil imports in November.

In the short run, Russia would probably struggle to redirect significant exports to China, with higher logistics costs and lower oil prices dealing a blow to its economy, according to the report.

With already tight oil markets, Europe will also face challenges, including infrastructure bottlenecks. Certain refineries have been adapted to use Russian oil and will be less efficient producing without it. Replacing Russian refining capacity with European will also be difficult and EU nations must also take action to curb demand, the think-tank said.

“While Europe will in any case be able to survive without Russian energy, the corresponding pain can be substantially reduced by preparing structural measures now and deploying no-regret options immediately,” said Georg Zachmann, who co-authored the report.

Members of the International Energy Agency should maintain a program of demand restraint measures to bring about a 10% cut in oil demand, according to Bruegel. Moves to encourage public transport and political campaigns to boost car-sharing could make a significant contribution, with the potential to impose restrictions on the use of vehicles on certain days.