What would an embargo on Russian oil mean for Austria?

As the EU prepares a sixth round of sanctions on Russia - including a gradual embargo on Russian oil - The Local looks at how the measures could impact Austria.

What would an embargo on Russian oil mean for Austria?
The Schwechat OMV oil refinery near Vienna is among Europes largest inland refineries for mineral oil products. (Photo by JOE KLAMAR / AFP)

Business leaders and consumers in Austria are preparing for the next round of economic sanctions after EU Commission President Ursula von der Leyen confirmed on Wednesday that the proposal includes an embargo on Russian oil.

The draft proposal is now with the 27 EU member states for consideration and a unanimous decision is required for the sanctions to be enforced.

According to Der Standard, consultations with member states are expected to last several days, but Hungary and Slovakia have already voiced concerns due to their high dependency on Russian oil.

READ MORE: What does Russia’s decision to cut gas to Poland mean for Austria?

In Austria, Energy Minister Leonore Gewessler has already declared support of an EU embargo on Russian oil and confirmed that Austria stopped processing Russian oil in March.

But a ban on Russian oil is a different story and would likely lead to even higher prices in Austria at a time when inflation is at 7.2 percent.

Here’s what you need to know about the proposed embargo on Russian oil.

What is in the next round of EU sanctions against Russia?

The proposal includes sanctions against the head of the Russian Orthodox Church, Patriarch Kirill I, and the exclusion of Sberbank from the Swift payment system, but it is the planned embargo on Russian gas that would have the most impact.

According to reports, imports of crude oil to the EU will be phased out within six months, followed by imports of refined oil products by the end of 2022.

During an announcement at the European Parliament, Von der Leyen said: “In this way we maximize the pressure on Russia and at the same time minimize collateral damage for us and our partners worldwide.

“Because if we want to help Ukraine, our own economy must remain strong.”

The Center for Research on Energy and Clean Air (CREA) recently announced that EU countries have transferred €48 billion to Russia since the start of the war in exchange for energy supplies.

How will the new sanctions on Russian oil impact Austria?

Michael Landesmann, Senior Researcher at the Vienna Institute for International Economic Studies (WIIW), told The Local that the biggest impact in Austria would be on consumer prices due to disruption to the global supply of oil. 

Landesmann said: “The EU will become an additional player in markets where the EU was not previously present and this will push prices up.

“But on the supply side, there will be more Russian oil on the world market than there was before, and when there is too much supply it depresses world markets.”

FOR MEMBERS: ‘An unprecedented situation’: How would a gas embargo impact Austria?

As a result, Landesmann expects there to be an increase in the price of oil and associated products and services within Austria in the short term.

He said: “Oil prices are already high right now and they could rise another 10 to 15 percent, but as things become more transparent the prices will come down again.

“Populations in western Europe – including Austria – will feel these price hikes, along with businesses involved in the processing of crude oil into different products.

“Fuel also feeds into transport costs so there will be an additional element of price transmission across the economy.”

Alternative oil markets for Austria include countries in the Middle East, Venezuela and Nigeria.

What about gas?

While there is a wider global market for sourcing oil and coal outside of Russia, the same situation doesn’t apply to natural gas and there are widespread concerns in Austria that an embargo on Russian gas could be next. 

In an interview in Der Standard, Wolfgang Katzian, President of the Austrian Trade Union Federation, said: “The big problem is industry – we have sectors that cannot produce without gas. 

“At the end of the day, mass unemployment would be the result of a gas boycott, which I don’t want. I am therefore clearly against a gas embargo. 

“The third area that is often forgotten is that we also need gas to generate electricity, which means a gas crisis would be followed by an electricity crisis.”

READ ALSO: How Austria plans to secure enough energy for next winter

So far, the EU Commission has steered clear of imposing sanctions on Russian gas and Landesmann is not expecting an embargo on gas imports anytime soon. 

Landesmann told The Local: “From a European point of view, it’s good to push for an embargo on oil because it’s of bigger importance to Russia as a source of income.

“In this case, the effects are in favour of the EU, but with gas it would probably be the opposite.”

In Austria, 80 percent of natural gas imports come from Russia. Experts believe Austria could only get rid of this dependency by 2027 if it manages to reduce its gas consumption by 25 per cent and expand biogas and green hydrogen domestic production.

In April, Austria announced a €5 billion investment towards storage and natural gas stockpiling as a contingency plan for next winter. This is in addition to €1.6 billion that had already been earmarked for Austria’s reserve gas supply.

Still, the country’s gas storage tanks, which should be 80 per cent full by the start of next autumn to last through winter, are currently only around 18 per cent full. 

What has already been sanctioned by the EU?

Previous EU sanctions have targeted Russian steel, cement and coal, denied Russian planes and ships access to EU airspace and ports, and banned the export of technically important goods to Russia. Russia’s financial system has also been sanctioned. 

However, other countries (that are not as heavily reliant on Russian energy supplies) have already placed sanctions on Russian oil.

In March, the UK pledged to phase out all oil Russian imports by the end of 2022 and the US banned the import of Russian oil, gas and coal.

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‘Unimaginable’: Austria prepares to reopen coal power station

As an "emergency measure", Austria is getting ready to reopen a coal-fuelled power station near Graz amid fears there will be disruptions to the gas supply from Russia this winter.

'Unimaginable': Austria prepares to reopen coal power station

At the Mellach coal power plant in southern Austria, spider webs have taken over the conveyor belts, and plants and flowers have sprung up around the vast lot that once stored coal.

The plant, Austria’s last coal-fuelled power station, was closed in the spring of 2020, but now the government – nervous that Russia may cut its crucial gas deliveries further – has decided to get the site ready again in case it’s needed.

“I never would have imagined that we would restart the factory,” Peter Probst, a 55-year-old welder, told AFP during a visit of the plant.

“It’s really sad to be so dependent on gas,” he added.

READ ALSO: How to keep your apartment cool in Austria this summer amid rising energy prices

Europe had been trying to move away from coal in the fight against climate change.

But as Russia has cut gas deliveries in the wake of sanctions the West has imposed on it for the war in Ukraine, European countries are turning back to coal.

Today, the Mellach plant’s white and red chimney stands out amid fields of corn and pumpkins, the city of Graz in the distance.

Inside, the walls are black, and coal dust clings to the doors and railings.

Some 450,000 tonnes of coal were stored at the plant before its closure as Austria’s conservative-Greens coalition aimed to have all electricity come from renewable resources by 2030.

Site manager Christof Kurzmann-Friedl says the plant operated by supplier Verbund can be ready again in “about four months” — just in time to help tackle any gas shortages in winter.

READ MORE: When will you get your cost of living ‘bonus’ payments in Austria?

Welder Peter Probst reacts to the news that the coal-fuelled power plant in Mellach will be reopened. (Photo by JOE KLAMAR / AFP)

“Emergency measure”

Chancellor Karl Nehammer insisted on Monday that the plant would only go online if necessary, while Austria holds on to its goals to reduce emissions.

“It’s really an emergency measure,” the conservative told foreign correspondents at a briefing.

“It’s really something that shows how extraordinary our times are… We must prepare for any eventuality.”

The 230 megawatt power plant would take over from the nearby gas-fired plant, also operated by Verbund, which currently supplies heating to Graz’s 300,000 inhabitants, according to Kurzmann-Friedl.

FOR MEMBERS: EU oil embargo: How will the sanctions impact Austria?

He warned, however, that the site must still be readied, hooking up all the equipment again, in addition to hiring qualified personnel and above all finding enough coal.

Before, the coal mainly came from mines in Poland’s Silesia region, which the Polish government is aiming to shut.

Because coal prices have risen by as much as three times since 2020, the power produced by the plant will also be more expensive, Kurzmann-Friedl said.

Criticism has already flared with the opposition Social Democrats slamming the decision to reactivate the coal plant as “an act of desperation by the Greens”.

“Will the next step be the reactivation of Zwentendorf?” the opposition asked, referring to the country’s only nuclear power plant.

The Alpine nation of nine million people has been fiercely anti-nuclear with an unprecedented vote in 1978 against nuclear energy that prevented the plant from ever opening.