The editors of the Washington Post are impressed that the members of the European Union are discussing an end to their purchases of Russian oil and gas:
Soaring energy prices are clearly a hardship. But it’s important to remember how much progress has been made. Germany is a good illustration; it has reduced its Russian oil imports from 35 percent of its needs last year to 12 percent now, coal from 45 percent to 8 percent, and natural gas from 55 percent to 35 percent. It’s better late than never for the E.U. to wean itself off Russian energy.
Their observation: it’s about time.
The editors of the Wall Street Journal are similarly supportive:
Russian energy exports to Europe fuel Vladimir Putin’s war machine. Europeans are getting serious at long last about neutralizing this strategic weapon by proposing an embargo on Russian oil imports. Good for them.
The European Union’s latest round of sanctions seeks to ban imports of Russian crude over the next six months and refined products by the end of the year. Hungary and Slovakia, which rely more on Russian oil, will be granted until the end of 2023 to comply. The ban won’t have an immediate impact on the war, but it’s an important political and economic step.
There’s an old adage: sell on the rumor buy on the fact. We’re still at the rumor stage on this. I’ll be a lot more impressed when they actually stop buying Russian oil and gas.
There is a world of difference between ending purchases of Russian oil and gas within months and by the end of 2024 as some of the EU members want. Most importantly a lot fewer Ukrainians might die. Were Europe to stop buying Russian oil and gas immediately it could end the war, at least it could if there is any economic basis to it at all. If they wait a year or two years, Russia might well have made other arrangements.
I would be cautious with the promise that a European embargo on oil and gas will end the war.
First, Janet Yellen warned there is a significant chance it will backfire
https://www.dailymail.co.uk/news/article-10740365/amp/Treasury-Secretary-Janet-Yellen-says-European-ban-Russian-oil-LITTLE-deter-Putin.html
“That would clearly raise global oil prices, it would have a damaging impact on Europe and on other parts of the world, and, counterintuitively, it could actually have very little negative impact on Russia, because although Russia might export less, the price it gets for its exports would go up,â€
Oil and gas have inelastic demand supply curves. The charts on oil price looks to be ready to go well beyond $110/barrel.
The backfire could be
(A) disorderly rise in oil causing disorderly inflation, shortages, and shutdowns in Europe; raising pressure for direct military intervention to “win†the war
(B) pushing India / China to substantially increase their purchase of Russian energy and be much less cautious about potential sanctions risk
I need someone to explain to me how energy embargoes will end the war. It’s a variation of the anaconda strategy but Russia isn’t lacking in oil or other raw materials; their industrial base is lacking in high technology — but this war as currently waged doesn’t require the latest technology.
For example; precision guided munitions requires electronics, but technology of the late 90’s (think Serbian war). Russia has semiconductor fabs at that level of the 90’s. Or drones; the technology is 20 years (used in Afghanistan); it wouldn’t be surprising if Russians are self sufficient in the critical parts for its drones.
I am not saying an embargo shouldn’t be done. But what’s the objective and how will it contribute to the objective?
I have made that same point myself, CuriousOnlooker. It’s among the reasons I mention speed of onset. Note that I say “could”. If they ease into it, IMO the likelihood of its ending the war is zero.
I would add that if there’s no clear objective, how do you if it will achieve the objective?
At one point today, the Russian ruble had risen to 64.72 to $1. It has since fallen back to 65.42 per $1. Since last fall, the dollar has lost 10% of its value against the ruble. If anything, sanctions are hurting the dollar and the euro.
It’s an open question as to where Europe will get replacements for Russian oil, gas, coal, metals, ore, and grains. With oil today at $108/bbl, and rising, the Persian Gulf states could cut production and still make more money than they were before the war.
Donald J. Harreld, in An Economic History of the World since 1400, makes the point that when the Dutch tried to stimulate spice production by raising prices paid to farmers, the farmers actually cut production, because they had all they wanted.
PS. If economic embargoes prevented wars, WW I would not have happened.