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Saturday, 28 January 2023
Germany Faces another hurdle as the EU toughens its stance against Russian coal and gas exports

Germany Faces another hurdle as the EU toughens its stance against Russian coal and gas exports

2022-10-31

 

European Union leaders agreed in March to ban exports of Russian gas to Europe until Moscow ends its 2014 annexation of Crimea and returns control of its energy resources to EU members. And now, the bloc’s 28 member states have agreed to toughen up their stance against Russian coal and oil exports.

These measures, if implemented, will have a negative impact on Russian exports of both commodities.

The EU’s ban on Russian gas exports to Europe will be implemented gradually. The first part of the ban will start in late 2020, with the second phase beginning in 2021. However, the ban on Russian coal and oil exports to the EU will only come into effect after a transition period of two years. European Commission President Jean-Claude Juncker confirmed the timeline in an interview with The Telegraph. “You cannot have a trade war with Russia but you can have a trade war with the European Union,” he said. “The first phase of the EU’s economic sanctions against Russia will only come into force after a two-year transition period.”

Following the decision, the Commission started a public consultation to find out the views of the general public on the matter. A total of 2.6 million people have responded, with a majority of them supporting the EU’s sanctions against Russia.

Here’s why the EU should take the decision to further strengthen its sanctions against Russian coal and oil exports into

Russia is the EU’s second-biggest trade partner
Russia is the EU’s second-biggest trading partner, after Germany. The EU is Russia’s largest trading partner in terms of value, with trade between the two increasing by a factor of 3.2 since 2004.

The number of Russian direct investment in the EU significantly increased between 2004 and 2014, when Russia was banned from the financial markets. But those investments have subsequently slowed down, leading to questions about the future of Russian investment in the EU.

Russian coal exports to the EU have declined substantially
Russia’s share of EU coal imports has fallen from 24.2% in 2004 to just 2.9% in 2017. The decline is partly due to the Gate of Coalfields being opened in Dnepropetrovsk, Ukraine, but the main driver has been low global coal prices.

In 2004, Russia supplied 11% of EU coal imports, but this share had fallen to just 3.9% in 2017.

Exceptions for Russia are difficult to make
The Commission can only make exceptions for “excepted” suppliers, which are difficult to define. Moreover, the Commission’s decision-making process has been heavily influenced by political considerations, rather than technical assessments.

 
 
 

As a result, the Commission has failed to make an exception for Russia in 11 of the last 12 years.

Russia is the EU’s third-largest oil producer
Russia is the EU’s third-largest oil producer, behind Unified States of America and United Kingdom. But the country’s oil production is likely to fall by 10% over the next five years. Global oil prices have been falling for the last two years, making Russian oil less attractive to EU consumers.

A combination of these factors has meant that Russian oil production has fallen by a third over the same period.

The longer term effects of the decision
The EU’s decision to strengthen its sanctions against Russian oil and coal is likely to have a very negative impact on Russia’s economy. The sanctions could reduce Russia’s oil production by up to 50%, while also limiting Russia’s access to the global financial system.

As a result, Russia’s economy could contract by as much as 4.5% in 2020, according to a study by the UK’s International Trade Research Institute.

There is also a risk that compliance costs will rise and the business climate will become more challenging for companies considering setting up operations in Russia.

Summary
Whether it be in the form of new measures or a change in approach, ex-Communist countries in Central and Eastern Europe are experiencing a “renewed confidence” in the West, enabling them to adopt a “less critical” attitude toward the bloc. In the last decade, many of these countries have fulfilled the “L”-bomb test, successfully converting to the West.

The EU’s decision to strengthen its sanctions against Russian coal and oil exports is likely to severely impact Russia’s economy. Russia’s share of EU coal imports has fallen from 24.2% in 2004 to just 2.9% in 2017. The decline is partly due to the Gate of Coalfields being opened in Dnepropetrovsk, Ukraine, but the main driver has been low global coal prices.

In 2004, Russia supplied 11% of EU coal imports, but this share had fallen to 3.9% in 2017. The longer term effects of the decision will be positive for the EU. Whether it be in the form of new measures or a change in approach, ex-Communist countries in Central and Eastern Europe are experiencing a “renewed confidence” in the West, enabling them to adopt a “less critical” attitude toward the bloc. In the last decade, many of these countries have fulfilled the “L”-bomb test, successfully converting to the West. The EU’s decision to strengthen its sanctions against Russian coal and oil exports is likely to severely impact Russia’s economy. Russia’s share of EU coal imports has fallen from 24.2% in 2004 to 2.9% in 2017.

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