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EU oil embargo: How will the sanctions impact Austria?

The EU’s latest round of economic sanctions against Russia targets oil imports, but what does it mean for Austria? Here's how the move could impact the country.

EU oil embargo: How will the sanctions impact Austria?
The Schwechat OMV oil refinery near Vienna is among Europes largest inland refineries for mineral oil products. (Photo by JOE KLAMAR / AFP)

After weeks of debate and negotiations, the EU finally unveiled a sixth package of economic sanctions last week (Tuesday, May 31st) in response to Russia’s invasion of Ukraine.

This time the target is Russia’s lucrative oil industry with the 27 EU member states agreeing to block the import of Russian oil (by sea) by the end of 2022, with a temporary exemption for Russian oil that comes to the EU via a pipeline.

Additionally, Poland and Germany have pledged to stop pipeline imports of Russian oil by the end of the year, resulting in 90 percent of all Russian oil imports being blocked, according to the BBC.

READ MORE: REVEALED: What is Austria’s emergency plan if Russia cuts gas supply?

The aim of the sanctions is to reduce the income Russia makes from the export of oil to the EU, but the move won’t be without consequences for people within the bloc.

The Local spoke to Elisabeth Christen, Senior Economist at the Austrian Institute of Economic Research (WIFO), to find out how the sanctions might impact Austria in the coming weeks and months.

Where does Austria source oil from?

Prior to the latest round of sanctions, Russia supplied 27 percent of the EU’s oil, amounting to around €400 billion a year.

Austria relies on Russia for just 7.5 percent of all crude oil imports, but processed petroleum products are mostly imported from other EU countries that rely on Russian oil.

Christen told The Local: “For Austria, Kazakhstan is the most important oil importing country with a share of 40 percent, followed by Libya and Iraq, which together cover about 80 percent of domestic oil imports.

“Overall, about 48 percent of Austria’s oil supplies come from CIS [Commonwealth of Independent States] countries, which could potentially be eliminated in the event of Russian countermeasures.”

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Talks are now ongoing within the EU to possibly expand the import of oil from OPEC countries, such as Saudi Arabia, the United Arab Emirates, Nigeria and Venezuela. 

Christen said: “A shortage and the associated massive increase in fuel prices would have far-reaching negative effects on the transport of goods and passengers.”

Oil imports from OPEC countries currently account for 45 percent of all Austrian oil imports.

How will the new sanctions impact Austria?

When asked about the impact of the oil embargo, Christen said high oil consumption industries and motorists in Austria will be impacted by increasing prices.

She said: “Rising fossil fuel prices will immediately affect the transport service sector, but also indirectly other sectors, like agri-food, that is highly dependent on fossil fuels. 

“Moreover, some households in Austria use oil for heating and oil is a major input for the plastics industry.

“Oil is also used to power electricity plants in Austria, but only to a very limited extent. For electricity generation, gas supply from Russia is much more crucial, as roughly 30 percent of Austrian gas consumption is used for electricity and heating.”

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Additionally, there are concerns that Russia’s economy could withstand some of the impacts of the oil embargo and that European economies could be hit harder.

Christen said: “The gradual introduction of the oil embargo could give Russia the necessary time to develop alternative oil export strategies or to reduce production volumes, which could make the embargo less effective.”

In this case, Christen warned the consequences for Austria and other European economies could be “negative”.

What has the Austrian government said about the oil embargo?

Austria’s Federal Chancellor Karl Nehammer has welcomed the latest package of sanctions against Russia, but acknowledged it could lead to tough financial times.

Speaking after the announcement, Nehammer said the measure will be “painful” for EU member states but that it was nothing compared to what people in Ukraine were dealing with, reports the Kronen Zeitung.

Additionally, Nehammer expressed support for Hungary’s Orban in his request for a compromise on the package, and stated that solidarity of member states was crucial to allow individual countries to support the sanctions.

FOR MEMBERS: What is Austria planning to do to cushion the rising cost of living?

Could gas be next?

Since the announcement about the EU sanctions on Russian oil, the media has been speculating about whether an embargo on the import of Russian gas could be next.

The Austrian Federal Government has already stated that Austria could not support sanctions on gas due to the country’s high dependency on Russian imports (around 80 percent).

Nehammer recently reiterated this stance and said: “The gas embargo will not be an issue in the next package of sanctions either.”

Economist Christen also doesn’t see an embargo on Russian gas in the near future, but said countermeasures by Russia could not be ruled out.

She said: “A full oil embargo increases the risk of countermeasures by Russia, such as a cutback in natural gas supplies to the EU – a risk, however, that already exists without import restrictions in the oil sector.”

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Why (and when) double-digit inflation is set to hit Austria

Financial experts in Austria do not expect inflation to slow down any time soon. In fact, they are predicting the opposite. Here's what you need to know.

Why (and when) double-digit inflation is set to hit Austria

In a recent interview, inflation expert Josef Baumgartner forecast that inflation in Austria will hit double-digits in the coming months.

Baumgartner, from the Austrian Institute of Economic Research (WIFO), told Kurier that residents in Austria should prepare themselves for an ongoing increase in inflation due to rising energy prices.

Baumgartner said: “We’re a long way from the all-clear. According to the announcements by Wien Energie and EVN, I expect an inflation rate of more than ten percent by September, and no later than April 2023.”

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The latest estimate by Statistics Austria shows inflation was already at 9.2 percent in July, as reported by The Local.

This is in stark contrast to predictions made by the European Central Bank earlier this year when it was expected that inflation would fall in the second half of 2022.

How expensive could energy in Austria become?

WIFO expert Baumgartner based his forecast for Austria on wholesale electricity prices, which are currently 247 percent higher than in August 2021, reports ORF

Baumgartner said: “If the energy suppliers pass this on one-to-one, there is a risk of an enormous price increase.”

Additionally, Baumgartner expects prices for electricity and gas to go up by a further 50 percent in September, and was not optimistic that the planned nationwide electricity price cap will be enough to dampen energy prices.

READ MORE: Cost of living: How to save money on energy bills in Austria

He added that federal government intervention must go further to tackle gas and district heating prices.

On August 3rd, EVN and Wien Energie – both part of the Energieallianz Austria (EAA) group – announced they will be increasing energy prices from September.

EVN (which is mostly state-owned) blamed the move on price increases on the international wholesale markets.

According to ORF, Baumgartner believes these planned price increases will further impact the customer price index and push up inflation across Austria, even if the tariff changes only apply to customers in the east of the country.