Stage 2 of the oil embargo against Russia has been in effect since the beginning of the year. Germany does not obtain Russian oil either by ship or through pipelines. Imports are frozen. This could lead to fuel shortages in East Germany. The prices at the gas stations are already rising. What the embargo means for Germany and Europe and how a plan from the Ministry of Economic Affairs should help.

One of the largest oil refineries in Germany is located in Schwedt, in north-eastern Brandenburg. More than 1200 people are employed here, almost all of Berlin and Brandenburg are dependent on the PCK refinery in the Uckermark. With the beginning of the new year, stage 2 of the oil embargo against Russia was initiated. As a result, the annual capacity utilization at the plant has fallen sharply – to around 55 percent. If it falls below 50 percent, the supply in the entire surrounding area and in the capital is in jeopardy. The phased sanctions plan poses a number of hurdles for the entire Federal Republic and the EU.

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On December 5 last year, the European Union carried out its threats against Russia, which launched a war of aggression in Ukraine on February 24, 2022, and stopped imports of Russian oil by sea – stage 1 of the oil embargo. The next step will follow at the beginning of 2023. On January 1, Germany will stop importing Russian oil via the Druzhba pipeline.

The Druzhba pipeline – Druzhba means friendship – connects Russian oil fields with Eastern and Central Europe. 2.5 million barrels of oil can pass through the pipeline every day – an important source of income for Russia. Poland, Slovakia, Belarus, Hungary, the Czech Republic and Germany, among others, are connected to the tube. The PCK refinery in Schwedt was also supplied by the Druzhba tube until the second embargo level came into effect.

Stage 3 followed on February 5th. The embargo has since been extended to diesel and other petroleum products from the Russian Federation in a bid to further drain Russian President Vladimir Putin’s war chest.

Oil embargo against Russia:

But what do these steps mean for the Federal Republic of Germany and the European Union itself?

The most important questions and answers about the oil embargo:

A total of 15 oil refineries are in operation in Germany. Two of them are particularly affected by the EU embargo against Russia. The PCK refinery in Schwedt and the Central German refinery in Leuna. The Russian oil supplies at both locations have not yet been completely replaced. For the time being, operations are still on the back burner. According to the operator TotalEnergies, the refinery in Leuna covers large parts of the petrol requirements in Saxony-Anhalt, Saxony and Thuringia. Despite the embargo, the federal government is convinced that the supply can be guaranteed.

The Mitteldeutsche Raffinerie Leuna in numbers:

Ralf Schairer, head of the PCK refinery in Schwedt, was still optimistic on day two without Russian oil and spoke of a “first milestone” that had been passed. The conversion of the system works. The refinery is running stably, “of course with less throughput.” Additional crude oil quantities via Poland and Kazakhstan have been discussed for a long time, but were still missing at the beginning of the year.

Since the oil embargo from January 1, the refinery has been supplied solely via the approximately 200-kilometer-long pipeline from Rostock to Schwedt, which has never been running at full capacity. The preparations for the maximum operation of this pipeline have all been made, said Schairer. He is also confident that additional oil will come through other routes. Brandenburg’s Economics Minister Steinbach said that additional deliveries that were announced from Poland and possibly Kazakhstan “now have to follow as soon as possible”.

In addition to the quantities of tanker oil via the port of Rostock, crude oil is to be brought in via the port of Gdansk. According to the Federal Ministry of Economics, this should be enough to use 70 percent of the capacity of the PCK so that large parts of eastern Germany can continue to be supplied with fuel. There is also a job guarantee for the approximately 1,200 employees. According to the operator, jobs are therefore not affected by the embargo park. The Central German refinery in Saxony-Anhalt, which employs around 600 people, is also to be supplied with oil from Gdansk.

The PCK refinery in Schwedt in numbers:

Before the war, Russian oil imports covered around 35 percent of Germany’s needs. The diesel share was even higher. About two-thirds of the oil flowed through the Druzhba. However, the replacement deliveries from Poland and Kazakhstan are not enough. In addition, Germany therefore obtains oil from Great Britain and the USA, for example.

Despite the embargo, Germany is still dependent on Russian infrastructure. In order to transport oil from Kazakhstan to Europe, the ex-Soviet republic has to resort to the Russian pipeline infrastructure or take a more expensive and complex route: ship it via the Caspian Sea to Azerbaijan, and from there via pipelines to Turkey or the Black Sea coast of Georgia.

According to the head of the state oil and gas company Kazmunaygas, Magsum Mirsagaliev, his company is ready to send test deliveries to Schwedt via the Druzhba pipeline from January. According to one application, 1.2 million tons of oil are to be passed through. According to the Russian leadership, it is ready to allow Kazakh oil to be transported to Germany. However, that could change at any time.

Concerns about a new wave of inflation at German petrol stations are currently high. Stage 3 of the embargo could fuel this further. Some experts even see a supply crisis coming. According to information from “Business Insider”, many employees at the PCK refinery are now on short-time work because operations had to be shut down to almost 50 percent. The announced deliveries from Poland and Kazakhstan are still awaited.

And that is slowly becoming a problem. According to the price information service Argus Media, the price of petrol is already rising in the Seefeld petrol depot and there is already a shortage of petrol in the region. “PCK shareholders have been holding back on gasoline since January 2,” writes one analyst. This is already evident in the surcharges on the national average for the petrol price of the Seefeld petrol depot, which is north-east of Berlin. In the first two days of January, this had already increased by 1.76 euros per 100 liters to 4.40 euros per 100 liters compared to the previous week. According to statistics from the ADAC automobile club, petrol and diesel prices have jumped sharply at the beginning of the year. The national average for petrol rose by 5.7 cents, and the price of diesel rose by 3.4 cents. This means that a liter of Super E10 costs 1.74 euros and a liter of diesel costs 1.85 euros.

At the beginning of the year, the Federal Ministry of Economics said that no sharp price fluctuations were to be expected, but that things could get a little more expensive. According to “Bild”, the Federal Ministry of Economics is planning to counteract the impending shortage with a three-point plan. According to this, “flow improvers” are to be added to the crude oil in order to increase the flow rate in the pipeline from Rostock. According to the ministry, the aim is to increase the “pipeline capacity”. This should allow an additional ten percent to be gained.

“With the addition of the liquid, pressure loss and friction are reduced. In this way, the oil inflow can be increased. But the capacities that are gained as a result are not very large,” says Prof. Matthias Kraume, process engineer at the TU Berlin to “Bild”. “If there isn’t enough, you resort to this remedy. Because the refinery relies on having a constant flow. I don’t know how long that will go on.”

Point two on the Habeck plan: With the imports via Rostock and from Poland (via Gdansk), there should be a refinery utilization of 70 percent. Point three covers the plan to obtain oil from Kazakhstan via the Druzhba pipeline.

Oil as a raw material is becoming increasingly scarce worldwide. As a result, the price of all important types of oil has been increasing continuously for years. A trend that, according to economists, will continue in the new year. Most recently, the start of the war in Ukraine caused a sharp jump in prices. The discussions about the EU-wide import ban on Russian oil caused the price curve to skyrocket at times. Since then the situation has stabilized somewhat. Prices have fallen slightly, but are still above the average of recent years.

At the end of 2022, a barrel (Brent Crude oil) cost $82.02 – $20 less than in August. Influencing factors here are the comparatively low trading volumes on the oil market towards the end of the year. In addition, there is an already gloomy mood on the financial markets or corona outbreaks in China, which could slow down the country’s economic development and thus reduce demand for crude oil, say experts. Analysts at Commerzbank are forecasting a price of $95 per Brent barrel for the first half of 2023. In the second half of 2023, they expect a rise to $100.

Briefly explained – What are sanctions? Easily explained