The Real Reason Behind the EU’s Drive to Embargo Russian Oil


by Tom Luongo, Tom Luongo:

This week the European Union is expected to announce a complete import ban on Russian oil. Hungary, in its first real act of defiance, is threatening to veto this; Germany, after some hemming and hawing, has finally decided it can survive such a ban.

Assuming Hungary’s objections are eventually overcome, at first blush this looks like yet another energy “own goal” by the people obsessed with soccer. The U.S. has already issued this ban.


Because European industry is heavily dependent on Russian oil and gas, the conventional wisdom is that the EU Commission is just petulant and incompetent.

Are they petulant? Yes. Incompetent? Possibly? But only if you think in conventional terms of doing the right thing for their people. What is clear to any serious observer of EU politics is that they are not interested in what their people have to say or want.

Theirs is an agenda which will brook no opposition, even if it means destroying its own economy to bring a rival to its knees.

That said, I sincerely doubt there will be a “buyers embargo” on natural gas because there is no viable substitute for it.

Hungary is using the need for unanimous consent within the European Council to block any ‘gas ban’ in any new economic sanctions package. There are at least three other countries which are happy Hungary is willing to suffer Brussels’ wrath.

But banning Russian oil, on the other hand, is different.

So, it is interesting that Hungary would do this, given they import no oil from Russia. {Ed. this is wrong, Hungary imports 65% of its oil through the Druzhba pipeline} This veto was predicted by me the morning after the Hungarians overwhelmingly rejected George Soros’s anti-Viktor Orban coalition and handed it an ignominious defeat.

Hungary, on the other hand, has energy independence from Brussels by having contracted directly with Gazprom for natural gas via Turkstream’s train that goes into Serbia and Hungary. This should give you some context as to why the EU is trying to sanction Serbia and cut off the flows of that pipeline where it crosses EU territory in Bulgaria.

With a fiscally, monetarily (they are not on the euro) and energy independent Hungary there is little argument for them staying in the EU if Brussels is going to treat them as second class members. Orban and his government have been resolute in their refusal to get involved in the Russia/Ukraine conflict even though there has been serious pressure applied by NATO.

It is almost as if Orban and the Hungarians are now daring the EU to advance Article 7 procedures to kick them out. The problem with that is, if they do, it would begin the fracturing of the EU.

So, what is more likely to happen now is Hungary will use this veto to get the EU to back off on the ‘rule-of-law’ violations which are justifying cutting off Hungary from its EU budget distributions. The horse trade here should be obvious.

Because Brussels and their behind-the-scenes backers absolutely want this ban on Russian oil as much as the U.S. and the UK want it. It is part of their long-term strategy to bleed Russia out, after turning Ukraine into Afghanistan 2.0.

And it is in the differences between the oil industry and the natural gas industry where they think they can achieve this goal.

Of Pipes and Populi

In both the oil and gas industries, pressurizing a well is, for the most part, a one-way process. You dig a well and pull the oil and/or gas out. It produces until the well is depleted. You replace the well’s natural decay in production by drilling a new well.

But even if there is a big demand shock to the downside, rarely an issue in the oil industry in the aggregate, then those wells keep producing. The market is temporarily glutted with oil, the price drops and old wells are not replaced until such time as supply-and-demand balance is restored.

Oil futures curves get constructed by traders to anticipate these effects on prices. And for normal volatility of oil demand, these curves should be reasonably predictable.

Unfortunately, we are living through a time where the most powerful people in the world (at least in their minds) are openly trying to destroy the petroleum market for their own purposes and agenda. They are actively working to make oil and gas prices volatile to the point of destroying investment in the industry.

They make no bones about this. Oil is the bane of the planet!

I call these people The Davos Crowd (for a description of them see my podcast, Episodes 7576, and 77 for the background information). They are the unelected oligarchs, bankers, hereditary power and newly Made Men (in the mafia sense) who gather at Davos, Switzerland, every year to decide on the future of humanity.

And it is their agenda, using Climate Change and international threats like biowarfare and terrorism as their justifications for a massive expansion of the surveillance state and their control over all things, but especially money.

Russia’s massive natural resource pile and sovereigntist-minded government stands wholly in the way of that. If you believe otherwise, you have been gaslit by Davos propaganda. I urge you to put away childish things, some rabbit holes are just holes, not warrens.

Back to the oil industry. Capping either a gas or oil well is dangerous because there is no guarantee it can be re-opened. Wells can be damaged and the oil/gas they contain lost without drilling a new one.

With gas you can just “flare it off” by burning the excess if your storage is full, rather than capping the well and wait for demand to return. With oil, on the other hand, you cannot really do that. You have to store the stuff somewhere. From all accounts so far, Russia’s oil storage capacity is already full, if not overflowing.

The oil industry in general is not geared for massive long-term storage due to supply/demand shocks because there is literally no need for it. What expands is the capacity to move oil around to consume it, not store it in big tanks hoping someone will buy it.

The industry has all the spare capacity it needs to coordinate supply and demand within pretty tight tolerances. It is not “just in time” delivery tight, but it is not capable of absorbing a 20% demand shock.

And this is where the West thinks it has a big lever to use against Russia right now. By all accounts, Europe is one of Russia’s biggest oil customers, with the port at Rotterdam taking in and refining as much as 1.4 million barrels per day before the war.

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