It is regrettable to state that the world’s dependence on fossil fuels causes conflicts, energy instability, environmental problems and climate change. To help stop Russia’s aggression in Ukraine, the Centre for Research on Energy and Clean Air (CREA) analyses Russia’s fossil fuel exports and proposes economic and financial measures to the international community to counteract energy dependence on the aggressor country.
The Czech Republic spends billions on Russian oil, leaving Ukraine in the background
Recently, the Centre’s analysts published a report showing that since the beginning of Russia’s full-scale invasion of Ukraine, the Czech Republic has spent more than 7 billion euros on Russian oil and gas. This is five times more than the 1.29 billion euros it provided to help Ukraine.
This situation was made possible by an exemption granted by the European Union, which allowed the Czech Republic to continue importing Russian oil despite the sanctions. This is a cause for concern, as the Czech Republic’s dependence on Russian oil is set to rise to 60% in 2023. In particular, Orlen Unipetrol, the only oil refiner in the Czech Republic, imported the most Russian crude oil at the end of 2022. The company purchased Russian energy on average 21% cheaper than alternative oil from Azerbaijan. This strategy allowed the company to generate an additional profit of about €1.2 billion. It is worth noting that despite the fact that they imported oil at a significant discount, consumers did not feel a significant reduction in petrol prices, which fell by only 4%.
Last year, revenues from fossil fuel exports accounted for a third (€97 billion) of Russia’s federal budget. Pipeline oil flows to Hungary, Slovakia and the Czech Republic are an important component of this revenue. These three countries were granted an exemption from the EU ban on Russian oil imports to give them more time to reduce their dependence on Russian hydrocarbons. However, the dynamics of Russian oil purchases have hardly changed. In the first half of this year, pipeline exports of oil totalled €2.5 billion, or one-fifth of total revenues from Russian exports.
The Czech Republic, among others, is facing the challenge of ensuring its energy security, which leads to the purchase of fossil fuels from Russia. By ensuring energy supplies for domestic needs, Prague is forced to financially support the Russian regime. On the other hand, the Czech Republic actively supports Ukraine by providing significant financial and military assistance, thus balancing its own energy needs with international obligations. The Czech government faces major challenges in reducing its dependence on Russian energy.
In 2022, Russian oil accounted for 56% of the country’s total oil imports. In 2023, the situation only worsened. The Czech Republic returned to the pre-war level of dependence. In the first quarter of 2024, the figure dropped to 49%, but still remained high.
This suggests that the Czech government has not done enough to phase out Russian energy imports. This may be due to various factors, such as economic commitments, limitations in finding alternative energy sources, or political and diplomatic conditions.
In the first half of 2024, the Czech Republic imported 1.2 million tonnes of Russian pipeline oil, worth €542 million. This is close to the average import figure before Russia’s invasion of Ukraine, which was €574 million in the first half of 2021.
Average monthly imports of Russian crude oil are down 46% compared to the same period last year. However, this decline was not the result of Czech efforts to reduce its dependence on Russian oil. Instead, it was due to two unexplained interruptions in the supply of oil through the Druzhba pipeline in the second quarter.
Even after the monthly cuts, Russian crude oil imports brought the Kremlin €300 million in tax revenues in the first half of 2024. This demonstrates that the Czech Republic has been able to maintain normal oil supplies to consumers even with reduced imports. Disruptions in crude oil imports have also shown that refineries in the country can obtain ample alternatives without a spike in domestic oil prices.
After a significant suspension of Russian gas imports at the end of 2022 and 2023, the Czech Republic spent €440 million to increase imports in the first half of 2024, despite having enough alternative non-Russian supply options from Norway and the global market for synthesised natural gas.
Experts believe that the Czech Republic can completely replace Russian oil supplies by increasing imports of petroleum products from Germany (which could cover a third of domestic consumption), fully utilising pipelines transporting non-Russian crude oil. Using the country’s vast crude oil reserves would account for about half of total annual imports.
If its Transalpine (TAL) pipeline distribution were optimally utilised, the Czech Republic could have received an additional 1 million tonnes of non-Russian oil and reduced its dependence on Russian supplies by 20% last year.
Recommendations of the Centre for Energy and Clean Air Research
The Czech Republic’s dependence on Russia must be reduced to stop financing Putin’s war. The European Union should eliminate all loopholes in sanctions on Russian hydrocarbons and complete the strategic disengagement from fossil fuels of the aggressor country. Among other things, the exceptions for Hungary and Slovakia should be cancelled and the loopholes that allow third countries to sell Russian oil back to the EU should be closed. The Eurozone should ensure that the Azerbaijani-Russian gas swap agreement does not allow Russia to continue to supply Europe via Ukraine.
The Czech government should stop importing Russian crude oil by the end of this year, and completely abandon it from 1 January 2025. This is the deadline for contractual obligations and the application of force majeure clauses.
The Czech Republic can reduce its dependence on Russian oil by increasing imports through the IKL and TAL pipelines, which are used to transport hydrocarbons and other chemicals. Maximum use of the available capacity will allow for additional imports of 1 million tonnes of non-Russian oil, reducing dependence by 20% from the 2023 level. A temporary increase in the allocated capacity of the TAL pipeline, which also serves Germany and Austria, should be agreed upon to access alternative oil supplies.
In addition, the Czech government can use the state’s strategic oil reserves of 3.6 million tonnes to cover the short-term deficit. This will help ensure uninterrupted oil supplies until the TAL pipeline expansion is completed.
Of course, the Centre’s report includes recommendations to the Czech government to accelerate the green transition. The Czech Republic plans to phase out coal by 2033, so it is important to avoid dependence on fossil gas. This is a good opportunity for the Czech Republic to invest in renewable energy, especially solar and wind power. Investments in solar and wind energy will reduce the risks associated with dependence on fossil fuels and support the transition to a sustainable energy system. Prioritising cleaner energy sources will help reduce our carbon footprint, increase energy security and achieve sustainability goals.
Tetyana Morarash
