In the seven months following Russia’s invasion of Ukraine, the tables have turned. Initially, major financial and commercial sanctions were imposed on Russia by the U.S., the U.K., the European Union and other nations. This had a telling effect on the rouble, which was trading at 81 per dollar before the invasion and by March fell to 151. However, the rouble recovered quickly in the following months, and by May, it went back to the pre-invasion levels.
In the months following the invasion, tougher sanctions against Russian oil and gas remained a contentious subject for countries in the European region. This was because a quarter of the region’s oil needs were met by Russia before the war. After much deliberation, the 27-nation bloc decided to cut off Russian oil that comes by ship from December 5. Russia also has increasingly decreased its oil exports to the European region and is planning to reduce it further if the U.S. and other nations go ahead with a price cap on its oil.
Subscribe here to get the Data Point newsletter delivered to your inbox
Data shows that a combination of supply-squeeze from Russia and self-imposed import restrictions have led to a sudden surge in Europe’s energy prices. Inflation across the European region spiraled up uncontrollably since the Ukrainian invasion. Chart 1 shows the month-wise inflation rate in the European Union since 2010 across various sectors.
Chart appears incomplete? Click to remove AMP mode
Energy-related inflation started to rise post the war and accelerated to over 40% in recent months. While the overall inflation and food-related inflation have surged to 10-year highs in recent days, their increase pales in comparison to the rise in energy prices.
The impact of rising energy costs was felt across all European nations. Chart 2 shows the energy-related inflation rates in select European countries. In the U.K., energy inflation crossed the 70% mark, and in Spain, it crossed the 60% mark, while in the Netherlands it almost touched 100%. In all the nations analysed, the energy-related inflation levels have reached at least a 10-year peak.
Such a drastic increase in inflation levels in Europe is understandable given the very high levels of dependency on Russian oil. Chart 3 shows the share of Russian oil imports in a country’s total domestic oil consumption. The figure provided is an average between 2014 and 2019. For instance, oil supplies from Russia formed 38% of Germany’s domestic oil demand. Countries such as Belgium, Finland and Netherlands too had a very high dependency on Russia for their oil needs.
In some countries, the figure exceeded 100% as a nation may import more fuel than it consumes in a year. Some may stock, re-export or convert it into other petroleum products and export them.
Despite such high dependence, following the Ukraine invasion, the oil supply from Russia to most of the European countries has taken a hit. Table 4 shows Russia’s share in a country’s total oil imports. The data is provided for two periods — February 2021 to June 2021, and February 2022 to June 2022. For instance, Russia formed 60-75% of Finland’s total oil imports in 2021. However, it reduced to 10-30% in April-June 2022.
A similar decreasing trend was observed in the U.K. Before the invasion, Russia formed 15-20% of U.K.’s total oil imports. However, between April and June 2022, it reduced to 2-5%.
With the U.S. and a group of seven major democracies working out the details on a price cap on Russian oil and the EU approving a measure along those lines this week, more Russian oil may get taken off the market, pushing the prices even higher.
(With inputs from AP)
Source: Euro Area Statistics, International Energy Agency