Have the Europeans succeeded in getting rid of their energy dependence? | War in Ukraine

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Have the Europeans succeeded in getting rid of their energy dependence? | War in Ukraine

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Since the invasion of Ukraine, the Europeans have paid Russia almost 200 billions of dollars for its oil, gas and coal.

Before the outbreak of the war, a quarter of the oil consumed in Europe came from Russia. Almost a year later, they have only partially succeeded in diversifying their sources of supply.

Russia remains their main supplier, followed by the United States and Saudi Arabia.

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The Biden administration had nevertheless launched an all-out offensive this spring to find new oil supplies for Europeans and to bring down the price of fuel, which had risen skyrocketed after the invasion.

The results are not very conclusive, however.

The EU has paid 84 billion euros (C$120 billion) to Russia for its oil since the invasion of Ukraine, according to data compiled by the Center for Energy and Energy Research. x27; clean air (CREA).

This summer, President Joe Biden traveled to Jeddah to meet Crown Prince Mohammed bin Salman and try to convince OPEC to increase its production, thus putting aside his campaign promise to make the kingdom a pariah following the murder of Saudi journalist Jamal Khashoggi.

An image of a fist-to-fist salute exchanged between President Joe Biden and Saudi Crown Prince Mohammed bin Salman has spill a lot of ink.

The United States wanted to pressure Saudi Arabia to increase its oil production, explains Olivier Appert, adviser to the Center for Energy & Climate from the French Institute of International Relations (IFRI). This would lower prices, and therefore it would have an indirect impact on the Russian economy. But there was a polite dismissal from the Saudis.

“This trip was a crushing failure, which been hidden by American diplomacy. »

— Olivier Appert, Energy & IFRI Climate

To top it off, on October 5, OPEC+ (made up of 24 countries, including Russia, which account for 90% of global oil production) decided to cut oil production by 2 million barrels per day, risks driving up the price of a barrel.

With the world's fourth largest reserves, Iran is another major player in the energy field. But the sanctions that weigh on the country because of its nuclear program hinder the oil trade.

Iran could potentially be the fourth or fifth most important producing country in the world, notes Olivier Appert.

There has indeed been a attempt to revive the 2015 nuclear deal, which could have allowed sanctions to be lifted and 1.3 to 1.5 million barrels per day added to the market. But this attempt ended in failure.

Iran has rather moved closer to Russia, to which it has sold drones, widely used in the context of the war in Ukraine

There is a rapprochement between Russia and Iran, as well as a move away from the possibility of a nuclear agreement and therefore the lifting of the embargo, underlines Mr. Appert. In the current context of repression against opponents, Western countries are reluctant to negotiate with a largely discredited government of the mullahs, he adds.

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Banned from the international community for several years in response to the authoritarian drift of President Nicolas Maduro, which the United States considers illegitimate, Venezuela is another country in the sights of Americans because of its oil wealth.

It was quite immediate from the moment Russia invaded Ukraine, says Thomas Posado, doctor of political science from the University of Paris 8 and specialist in Venezuela. Within 10 days, American envoys were in Caracas to negotiate.

For seven years, the country has been under international sanctions which have further hampered its oil exports. While Venezuela produced around 2.65 million barrels per day in 2015, that number drops to 700,000 in 2021.

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According to some analysts, in a year or two, Venezuela could produce around 1 million barrels per day and up to 3 million barrels within a decade. But this would require major investments. Indeed, the facilities are dilapidated and qualified personnel are missing.

In the event that the sanctions were completely lifted, the state of the infrastructure would not allow a return to the level of production of a few years ago, estimates Thomas Posado.

“You can't imagine it going back to 2.3 million barrels in a few months or even a few years. It would be a very long-term job, given the poor state of the oil infrastructure.

—Thomas Posado, Venezuela specialist

Concrete changes have already materialized. After an agreement between President Maduro and the opposition, Washington decided to ease the oil embargo and allowed the hydrocarbon giant Chevron to partially relaunch its joint venture with the state company Petroleos de Venezuela (PdVSA).

The US Treasury Department has also announced that it will grant Trinidad and Tobago a license to develop a large gas field located in Venezuelan territorial waters.

The oil infrastructure is in a terrible state.

Analysts are not, however, very optimistic.

For the moment, the progress is relatively small, underlines Thomas Posado. In addition to Chevron, the oil companies Repsol (Spanish) and EMI (Italian) were able to do business with Venezuela, but only in repayment of debts that had already been contracted.

To proceed with the total cancellation of the sanctions, the American administration claims that the presidential election which must be held next year is completely free. However, President Maduro demands, for his part, the lifting of sanctions before undertaking a dialogue with the opposition in view of the elections.

A showdown is taking shape, which risks being complicated by the divisions between the Americans themselves. Since Republicans regained control of Congress, President Biden has been uncertain of the support he needs to advance his priorities.

“Between the reasons that Nicolas Maduro has to derail these negotiations, the reasons that the Venezuelan opposition may have to derail the negotiations and the reasons that the United States has to derail these negotiations, it& #x27;is very, very, very far from being a process that is certain to succeed. »

— Thomas Posado, specialist in Venezuela

The Europeans decided, as early as May, to cut their energy dependence on Russia. They set embargoes on Russian crude and refined products, which went into effect on December 5 and February 5.

With these embargoes, the EU deprives itself of approximately 90% of the volumes of Russian oil that it imported from Russia before the invasion of Ukraine.

L' EU also agreed with the G7 and Australia to cap the price of Russian oil at $60 a barrel. Beyond this price, companies based in these countries will no longer be able to provide their services to Russia (trading, freight, insurance, shipowners, etc.) under penalty of sanctions.

The idea is to dry up Russia's war chest, which receives $400 million a day, on average, from hydrocarbon exports.

Russian President Vladimir Putin at an economic summit in Kyrgyzstan, December 9, 2022.

In response, President Vladimir Putin issued a decree prohibiting the export of all petroleum products to countries that would adopt this cap.

The objective of the sanctions, this is not x27;is not to block Russian oil, recalls Yvan Cliche, fellow and energy specialist at the Center for International Studies and Research at the University of Montreal (CERIUM). We just want to make sure it is sold at a lower price so as not to fill the Russian war chest.

The price of a barrel of Russian oil has been in free fall since the beginning of the year. It fell from US$94.99 per barrel on February 24, 2022 to US$59.5 on February 10, 2023, and was trading in January 48% below the international benchmark, Brent crude oil.

< p class="e-p">Russia's recent decision to cut oil production by 500,000 barrels per day has caused prices to rebound.

Other countries intend to take advantage of this oil which the Europeans no longer want. During the year there was a marked increase in Russian oil exports to China, India and Turkey.

Russian oil is still circulating, and it is in bottom of the ceiling price, notes Mr. Cliche. This is a very interesting position for India and China, which have actually moved on and bought much more Russian oil than in the past.

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Turkey emerges as a growing destination for Russian crude oil, while its exports of refined petroleum products to the EU and the United States are on the rise, finds the Center for Energy Research and Clean Air (CREA), an independent organization based in Finland.

Arrivals of Turkish petroleum products to European and American ports increased by 85% in September- October versus July-August, CREA rating.

OPEC's Monthly Oil Market Report for December 2022 also reveals that imports of Russian crude to the EU fell by almost 1 million bpd in November, while flows to Turkey increased sharply , to reach 400,000 bpd.

The main recipients of Turkish petroleum product exports were Spain, France, the United States, Romania and the -Low.

The United States, Spain and Italy also imported petroleum products from India, another country that has greatly increased its imports of Russian crude. Russian oil imports to India have multiplied by 10 over one year, notes Olivier Appert. And part of this oil eventually returns to Europe in the form of refined petroleum products.

Will these new buyers respect the ceiling set by the Europeans?

Olivier Appert is not really convinced. China and India have made it very clear that the embargoes decided by the West do not concern them, he underlines.

Will we succeed in rallying them ? This will be another challenge for the Europeans.

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