EU leaders have agreed to a partial ban on Russian oil imports, while waiving a key supply route to win Hungary’s support, as it seeks to punish Vladimir Putin for his war in Ukraine.
Diplomats said the embargo would cover oil and petroleum products but would exempt crude oil from being pipelined to Hungary, Slovakia and the Czech Republic.
The deal, delivered at a late-night summit in Brussels on Monday, will pave the way for the EU’s deal on a heavily delayed sixth package of sanctions, which includes measures aimed at banks. Russia and other individuals.
Charles Michel, president of the European Council of Member States, praised the deal in a tweet, saying it had “cut off a huge financial [Russia’s] war machine”and will”put maximum pressure on Russia to end the war”.
But the deal was only won after weeks of bargaining between member states and at the cost of substantial concessions made to Hungary and its neighbors, at the expense of the capitals. increasing number of rounds of sanctions against Russia.
Olaf Scholz, Chancellor of Germany, said the agreement proved that the EU was united. He added: “We have agreed on further sweeping sanctions against Russia. There will be an embargo on the majority of Russian oil imports.”
The capitals have yet to settle on how long the pipeline of Russian oil will last.
The ban will cover the purchase of oil by sea, which accounts for about two-thirds of Europe’s oil imports from Russia. In addition, commitments from Germany and Poland to halt oil imports through the northern part of the Druzhba (Friendship) pipeline, are expected to bring the ban to 90% by the end of the year.
Keeping pipelines free of any embargo is already a main needs of Hungary, which argued that the ban would put the country’s economy at risk due to its dependence on Russian crude oil. Hungarian Prime Minister Viktor Orbán also secured measures to ensure that Budapest could still access Russian oil from other sources should an “accident” happen with Druzhba, via Ukraine.
The partial ban risks distorting competition in the EU oil market, in which refineries connected to pipelines from Russia enjoy a price advantage. Russian oil prices have plummeted as European traders have shunned the country’s seaborne crude since Ukraine invaded.
If exports through Druzhba reach the pipeline’s maximum capacity of 750,000 bpd, that would earn Russia $2 billion per month from EU customers in the region.
Russia’s Urals crude is trading at around $93 per barrel, versus $120 of Brent, international oil standards. While Russian oil delivered through Druzhba may not receive such a large discount, depending on how the contract is structured, Hungarian oil giant Mol said it did. “Spiking” profits for its refiners since March due to “the widening Brent-Ural oil price differential.”
EU diplomats say there will be a ban on the resale of refined products made from Russian crude as part of efforts to reduce market distortions, with some countries enjoying a period longer. Diplomats said there would also be a ban on the provision of services, including the financing of oil shipments.
Shipping volumes through Druzhba have actually increased since Russia invaded Ukraine, with EU buyers looking to take advantage of huge discounts or to stock up ahead of any sanctions.
Argus, an energy price reporting agency, said that while sea shipments from Russia to Europe fell 500,000 bpd, Druzhba shipments rose 100,000 bpd in April compared with January and is expected to pick up again in May. Hungary increased shipments by 65,000 bpd while Poland imported by 130,000 bpd, which more than offset declines elsewhere.
Punishment package also includes the expulsion of Sberbank from the Swift messaging system as well as restrictions on many Russian state broadcasters and a new round of asset freezes and travel bans for individuals.
Brussels proposed an embargo on Russian oil purchases in early May, underscoring the EU’s difficulties in finding ways to increase sanctions on Moscow over the Ukraine war while not damaging parts of the economy. Europe’s economy depends on Russian energy. The EU has banned the use of Russian coal but exempts gas from sanctions.
However, Gazprom, Russia’s state-owned energy company, cut off supplies to Poland, the Netherlands and Bulgaria because it refused to pay for gas in rubles.
Additional reporting by Victor Mallet in Brussels, Eleni Varvitsioti in Athens and David Sheppard in London
