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• If the European Union imposes a sweeping Russian oil embargo, it could send Russia's economy into a depression, an analyst told Insider.

• Russia will have to slash its oil production because the country has very limited domestic storage capacity, said Kpler's lead oil analyst.

• Moscow will likely turn to China and India to help take on more oil supplies, but they won't be able to fill the gap.

Germany's announcement this week that it's ready to stop buying Russian oil makes a sweeping European Union oil embargo much more likely — which would have devastating consequences for Moscow.

"Russia's economy is projected to contract by more than 10% already this year. If an EU embargo happens, it would likely send the economy spiraling into a depression," Matt Smith, lead oil analyst at markets analytics firm Kpler, told Insider.

Without European buyers, Russia would need to find somewhere to put roughly 2.5 million barrels a day. Unless Moscow can sell that supply quickly or at least find a place to stash it, there's a strong chance Russia will have to slash its oil production dramatically due to its limited storage capacity, he said.

Russia could use its extensive network of pipelines as storage space, but that wouldn't hold all the excess supply, Smith explained, adding that unsold crude also could be loaded onto tankers and stored offshore.

But such solutions still wouldn't address the hard-to-fill hole in Russia's economy that an EU embargo would create. Oil export revenue to Europe accounted for 11% of Russia's GDP in 2021, far more than the 2.3%-2.6% that gas exports to Europe comprised, according to the Rhodium Group.

"A dent in export revenue will ultimately result in significant deterioration in the country's economy," Smith said. "It seems the path of least resistance for Russia will be to cut production, which doesn't come without its own consequences."

Why Putin can't count on China or India

India is already set to import Russian crude at a rate of 600,000 barrels per day as the lure of steep discounts outweigh international pressure to cut off business ties.

In the event of an EU embargo, those purchases could increase, and China could also help absorb some of Russia's oil. Smith estimates the two countries, which largely have avoided condemning Moscow for its war on Ukraine, could take in an additional 1 million barrels per day from Russia.

In fact, onshore oil inventories in China are 90 million barrels below their peak from late 2020, Smith noted. If Beijing pivots away from current suppliers, it could replenish its stockpile with heavily discounted Russian oil.