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European Union - Self Goal ?

Last night European Union announced that it had reached an agreement on the stoppage of Russian oil. This would impact two-thirds of shipments immediately and ninety percent by the end of this year. The oil markets at open were ready to react to the same by large tick up resulting in Brent oil touching highs of $122/bbl. This decision does not limit the impact only to the EU but to every nation as the oil premium stabilizes further at an uncomfortable high.

On the same day, Germany's CPI came at eight percent, a number not witnessed in past forty years. And this does not include the impact of the latest sanction package. Another announcement was made on the same day but this time from Russia, on stoppage of gas supply to Netherlands due non-payment from tomorrow.

All these factors are resulting in one impact for sure, that is all energy prices will be staying higher for the medium term. This does not augur well for the consumer countries that have no direct relationship with the conflict or the sanctions.

Within such an environment it is all well not only justified but sensible for these countries to buy cheaper oil from Russia. Though a $25-30 per bbl discount that is being offered is impossible to be fully gained as shipping and insurance costs are high, even a $15per bbl net discount goes a long way. Even if the country imports 1 mn bbl per day then those savings can be used to fund other costs that are rising as well.

For this very reason, Russia has become the fourth-largest oil supplier to India with a share of six percent as compared to one and a half percent a few months ago. But the coming winter will be full of chaos for Europe and the United Kingdom, as the further draining of reserves would lead to escalated energy prices for consumers that are already facing issues.


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