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. A further escalation level follows in February. What that means for Germany and Europe itself.
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 70 percent. Nevertheless, the system is running stably, say the operators. 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 will follow on February 5th. The embargo is then to be extended to diesel and other petroleum products from the Russian Federation in order 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, was 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 figures:
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 gas stations are currently high. Level 3 of the embargo could fuel this further. Some experts even see a diesel supply crisis coming. However, there is currently no sharp increase in the price of petrol and diesel due to the lack of oil deliveries from Russia. If that were the case, the price jump would have occurred before the second stage of the embargo came into force. The Federal Ministry of Economics also says that no strong price fluctuations are to be expected, but that things can get a little more expensive.
According to statistics from the automobile club ADAC, the nationwide average price for a liter of premium E10 petrol is 1.69 euros. A liter of diesel is 1.82 euros. Compared to the previous weeks, this makes an increase of a good two or around one cent. The reason for the price stability at the pumps: German companies have been replacing Russian deliveries with imports from other countries for some time. According to Christian Küchen, General Manager of the Fuels and Energy Business Association (En2x), “other influences, above all the global economy, the supply policy of OPEC or the currency relationship between the euro and the dollar,” are also decisive for the price development at the gas stations,” he said. World”.
Oil as a raw material is becoming increasingly scarce worldwide. As a result, the prices of all important types of oil have been rising 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 ban on Russian oil imports 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 US dollars – 20 dollars 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.