EU oil embargo: little impact expected on the Austrian economy –

In a report published by the Austrian National Bank (OeNB), the organization tries to estimate to what extent the Austrian economy will be damaged by the planned embargoes on Russian oil and petroleum products and how inflation in Austria will develop in coming years.

The background is the EU’s sixth sanctions package presented on May 4, which envisages an embargo on Russian crude oil and Russian petroleum products as its focal point. This is to be phased in by the end of 2022, but a final deal has so far failed due to Hungary’s lack of consent.

In principle, it should be noted that Austria’s direct dependence on Russian oil supplies is very low. Nevertheless, a certain indirect dependence via processed oil products cannot be ruled out, as well as a risk that the much more relevant Austrian oil imports from Kazakhstan will be affected, as these are routed via Russia.

In its forecast, the OeNB assumes that the embargo will mainly affect the Austrian economy via the expected price increases on the world crude oil markets.

Due to a drastic drop in Russian crude oil on the world market (to the expected extent of 50% of total Russian crude oil exports), oil prices are expected to increase by 15% to 23%. The calculations assume a full embargo from mid-2022, and the effects on oil prices should gradually diminish over time.

The impact of the embargo announced so far on oil production in Russia and oil exports to Europe is unclear. According to the IEA3, in April 2022, Russia’s oil production was almost a million barrels, or around 10%, below its pre-war level. In addition, oil production from OPEC+ countries in the Middle East as well as the United States should offset the decline in Russian oil for the time being.

Low direct dependence on Russian oil

As with natural gas, only a small part of Austria’s domestic consumption of crude oil and downstream products is supplied by domestic production, with the majority being imported. Produced or imported crude oil is then processed at the Schwechat refinery, but at the same time fuels such as gasoline and diesel are imported directly.

The primary use for products made with crude oil is transportation. In this regard, oil outages have a different impact than natural gas outages. The outage would mainly affect the traffic sector and therefore the transport sector and thus fuel supply bottlenecks, as many products could no longer be transported.

While Austria’s direct dependence on Russian oil supplies is low, its indirect dependence is much greater. Kazakh crude oil is transported via the CPC pipeline, which runs north from the Caspian Sea and then crosses Russian territory to Novorossiysk, where it is shipped to this Russian port on the Black Sea.

In the event of a further escalation of the conflict between Russia and Europe in the context of an oil embargo, effects on these deliveries cannot be excluded.

OeNB Austrian National Bank

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