31.05.2022 – The oil market is reacting to the half-hearted sanctions imposed by the European Union. The EU has just agreed to an “oil embargo light”. The Kremlin continues to be happy about money from the West. Meanwhile, Ukrainian troops in the Donbas are bleeding to death. Germany, in particular, is letting Ukraine starve militarily with its long arm.
Movement on the oil market: Prices have just increased significantly, rising to their highest level in a good two months. In the four-hour chart of Brent, we see in the MACD below (12.26.9) that we are approaching short-term overbought territory.
Source: Bernstein Bank GmbH
What warns us to be cautious: The latest movement is initially based only on expectations of a coming shortage. This could all collapse very quickly as soon as the embargo does not take effect properly and immediately. It is also quite possible that the now planned curtailment will be delayed or even called off again.
Loopholes in the embargo
This is what has happened: The EU states have reached a compromise on the oil embargo against Russia. For the time being, however, only Russian oil deliveries via the sea route are to be prevented. Oil will continue to flow via the pipeline called “Druzhba” (Friendship). In addition to Hungary, the Czech Republic and Slovakia are also to receive crude oil. Germany and Poland have made it clear they do not want to participate in this exemption – they are also attached to the “Druzhba”. However, some media report that Poland and Germany will continue to receive oil from the pipeline until the end of the year. In total, one-third of Russia’s oil imports so far come through the “Druzhba,” while two-thirds are transported by sea. According to what we have read, sea imports are to be stopped immediately. We are skeptical here.
EU Commission President Ursula von der Leyen rejoiced: the compromise would “effectively (…) reduce 90 percent” of Russian imports by the end of the year. Conversely, this means that Russia will de facto continue to receive massive amounts of petro-billions from us for its war for another six months. Europe is currently transferring around 450 million euros a day to Russia. Moreover, natural gas is exempt from sanctions.
Hollow words
As with weapons, the slippery caste of politicians talks a lot and acts little. U.S. President Joe Biden made it clear Monday that he would not supply Ukraine with long-range missiles. Whereby Russia continues to blithely bomb the supply routes and Ukraine cannot respond. No wonder Vladimir Putin waited with his attack until Donald Trump was gone. Germany is acting particularly mendaciously: Berlin has so far delivered no Leopard, no Marder, no howitzers, no Gepard tanks. And that will probably never happen. Because a state secretary claimed that there was an “informal agreement” in NATO not to deliver heavy equipment. Of which the other countries know nothing.
Gift of the appeasers
For the Czech Republic and Poland have sent old Soviet tanks to the front, the U.S. and France howitzers, the British apparently infantry fighting vehicles. But no aircraft for ground combat, no jets, no modern tanks, no medium-range missiles, no air defense, no laser-guided artillery. The whole thing looks like a dirty deal: Russia gets weakened with the minimum of weapons, but is supposed to quietly conquer the predominantly Russian-speaking “people’s republics” of Donetsk and Luhansk, otherwise leaving the core state of Ukraine alone. It’s all very reminiscent of the 1938 Munich Agreement, isn’t it?
The consequences for oil and stocks
Whatever the case, if the oil embargo takes effect in the medium term, Russia is likely to feel the financial consequences and the price of oil will continue to rise. But it is more likely that oil will continue to be imported to Europe after the turn of the year, that Russia will annex the Donbas in the meantime, and that Ukraine will have to accept this for lack of heavy weapons. In this way, the appeasers in the West could lay a small victory at the Kremlin’s feet and turn everything back to the original state. After all, nobody wants to provoke a nuclear war and we all want cheap energy after all… Stupid for Ukraine, which has lost tens of thousands of people. For traders and investors, this Western-directed Ukrainian defeat would mean that in the medium term, oil prices would fall and stock prices would rise. Bernstein Bank keeps you up to date!
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