Experts are warning that Europe is now facing the “worst energy crisis in decades” without the flow of cheap Russian oil.
In December, a European ban on most crude imports from Russia will come into effect.
EU leaders are now tasked with finding new sources of crude oil ahead of what is predicted to be a very dark and cold winter for European nations.
The move by EU countries seeks to endlessly sanction Russia for President Vladimir Putin’s invasion of Ukraine.
European Commission President Ursula von der Leyen recently said that halting crude oil imports later this year will “make the Kremlin pay” for the invasion.
However, the move has only backfired as Putin’s war chest has swelled by tens of billions of dollars due to the hyperinflation of energy prices and a flood of new buyers in Asia.
EU leaders have stepped up efforts to transition from Russian energy to other energy-rich countries.
However, they might find it challenging to increase energy imports due to limited spare capacity worldwide.
Monica Malik, the chief economist at the Abu Dhabi Commercial Bank, told the audience at an energy security panel hosted by the Institute of International Finance in Washington, DC, on Monday that the Gulf states, Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates, won’t be able to increase production to replace Russian oil in Europe.
After all, the world is moving into a much tighter oil market for the remainder of the year after OPEC+ cuts.
This could unintentionally spur a supercycle in pricing as brent crude inches closer to $100 a barrel, according to ZeroHedge.
So where will Europe source crude this winter if spare capacity worldwide is limited?
“The oil market is where it is because this question is so hard to answer,” Martijn Rats, the head of European Oil for Morgan Stanley wrote in a recent note.
“If we knew, we could all breathe a little easier.”
Without spare capacity — EU leaders will find it challenging to source crude around the world because production cannot be quickly ramped up.
Helima Croft, managing director at RBC Capital Markets LLC, warned, “I think we are facing the worst energy crisis in decades.”
Croft fears a populist backlash in Europe as sanctions against Russia has sparked a cost-of-living crisis.
This could force some EU governments to focus on affordability.
She said the probability of the US making deals with Venezuela or Iran to offset the energy crunch is unlikely.
One top EU diplomat admitted: “Our prosperity has been based on cheap energy coming from Russia.”
MUST READ: The speech by EU top diplomat @JosepBorrellF yesterday about the challenges ahead, saying it as it is (or was): "Our prosperity has been based on cheap energy coming from Russia."
— Javier Blas (@JavierBlas) October 11, 2022
Europe’s energy security is in dire straits as the cold season nears.
The problem with limited global capacity and higher energy costs will only strain Europe to the core.
This winter, there are risks of power blackouts across the bloc as energy supplies from Russia dwindle — and the inability to rapidly increase imports from abroad.
The UK warned about this scenario days ago.