In the months since Russia’s unprovoked invasion of Ukraine, Western countries have issued various sanctions against Russia to weaken its war effort. However, Russia is one of the world’s largest producers of oil, natural gas and coal, supplying energy to many EU countries and America.
This reliance on Russian energy means that efforts to sanction Russian exports could significantly impact the global economy. Even so, the European Union (EU) is gearing up to ban Russian coal amid the Russia-Ukraine war and a growing energy crisis. For this reason, the EU has significantly scaled back thermal coal imports from Russia as the full ban on Russian coal draws nearer.
The regional bloc imported 1.7mn tons of coal from Russia last month, which is more than 40% less than the coal the EU imported from Russia in May. It was the most significant drop in Russian coal imports since 2019, commodity consultants CRU estimated.
According to CRU analyst Dmitry Popov, European companies spent the past few months stockpiling Russian coal ahead of the ban, leading to an increase in Russian coal exports for three months straight. European companies have stockpiled so much coal they barely have room for iron ore, Popov noted.
The ban on Russian exports has increased fears of an energy crisis. This concern first started when Russia initially cut natural gas exports to EU countries as retaliation for sanctions imposed against its war effort in Ukraine. With gas flows from Russia cut by as much as 40%, European countries had to turn to other energy sources to cater to their energy needs.
Coal, despite being the dirtiest energy source, turned out to be the next best option, at least in the short term. Although green-energy advocates have argued that turning back to coal will impact key green-energy goals, EU countries such as the Netherlands, Germany, France and Austria turned to Russian coal as their gas pipelines dried up
The impending ban will most likely exacerbate the energy crisis and increase energy costs, especially in the winter. Set to take effect on August 10, 2022, the EU ban on Russian coal will cost the Kremlin an estimated €8bn ($8.2 billion) in annual revenue, significantly hurting its war effort in Ukraine.
Countries that were reliant on Russian coal have already begun turning to other energy sources for coal. Commodity data company Kpler estimated that the EU has imported roughly 15.8mn tons of thermal coal from other countries since Russia invaded Ukraine.
At the moment, it looks as if coal may be the savior of many countries faced with an energy crisis, and mining companies such as Arch Resources Inc. (NYSE: ARCH) are smiling all the way to the bank as orders for coal increase.
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