Impact of the Russian oil embargo on the euro area and the global economy
The European move to ban imports of Russian crude is projected to slow eurozone growth in the coming months. OECD chief economist Laurence Boone described the effect as a drag of just over half a percentage point in 2023, a consequence tied to higher energy costs and tighter financial conditions across the region.
Beyond growth, inflation is expected to rise as a result of the sanctions. Boone noted an increase of about 1.25 percentage points in inflation compared with a scenario where the embargo did not exist, a consequence of higher oil prices that OECD models put at an average of $123 per barrel in 2023, versus around $107 without the restriction.
The analysis points to predictable price pressures from oil-producing countries, especially OPEC members in the Persian Gulf, which have spare capacity that could be released to offset what the European market would otherwise receive from Russia, a figure close to 3.5 million barrels per day in some estimates.
Boone emphasized that current global oil markets contain surplus capacity that could be mobilized if Gulf producers choose to respond to the embargo. He cautioned that while some supply exists, the world pays a price for Russia’s actions in Ukraine, which he described as a major shock to the global economy. He suggested that relief would be selective and short-term.
Impact on the world economy
The Russian invasion of Ukraine prompted the OECD to revise its global growth forecast downward, expecting growth near 3% in the current year instead of the previously anticipated 4.5%. The revision is most pronounced in European economies that rely heavily on imports of Russian gas, oil, and coal.
OECD Secretary-General Mathias Cormann stressed that a recession is not forecast globally or in Europe, though he acknowledged several downside risks, including the possibility that energy inflation could be higher than anticipated.
Cormann argued that sanctions work and were justified as a response to Russia’s aggression. He highlighted the central bank sanction that cut Moscow off from its foreign reserves as a particularly impactful measure, limiting Russia’s ability to counter external pressures.
He also noted that Russia faces diminished demand for its oil and a drop in production. If the embargo becomes total through coordination by the G7 and the EU, Russia’s oil revenue could fall by roughly $51 billion to $67 billion annually, representing a significant hit to the country’s fiscal capacity.
However, the broader message extends beyond Russia. The OECD sees a humanitarian toll from the conflict, with millions displaced from Ukraine and ongoing stress on global supply chains. While early-year recovery seemed underway, inflation rose and has proved persistent, underscoring how war can dampen growth and lift prices for longer than initially expected. Investment and consumer confidence have both been affected, complicating the path back to steady expansion.