EU leaders agree to continue banning most Russian oil; Delayed insurance ban


European Union leaders have agreed to pursue a partial ban on Russian oil, paving the way for a sixth round of sanctions to punish Russia and its President, Vladimir Putin, for invading Ukraine.

The sanctions would ban the purchase of Russian crude oil and petroleum products delivered to member states by sea, but include a temporary exemption for crude oil by pipeline, European Council President Charles Michel said on Monday at a summit in Brussels.

“This immediately covers over 2/3 of Russia’s oil imports, cutting off a huge source of funding for its war machine,” Michel said in a tweet. “Maximum pressure on Russia to end the war.”

Assurance (or lack thereof) is the Achilles heel of Russian oil

Officials and diplomats have yet to agree on the technical details and the sanctions must be formally adopted by the 27 nations, and Michel said the ambassadors would meet on Wednesday.

Hungary, which will continue to receive Russian oil by pipeline, had blocked an embargo last month as it sought to ensure its energy supplies would not be interrupted. Budapest has received guarantees from EU leaders that it will be able to receive replacement supplies if the pipelines are disrupted, according to two people familiar with the talks.

The European Commission proposed to ban crude oil transported by sea six months after its adoption, while refined petroleum products would be stopped in eight months, according to people familiar with the most recent version of the proposal. Oil shipments via the giant Druzhba pipeline to central Europe will be spared until a technical solution is found that meets the energy needs of Hungary and other landlocked countries.

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Oil headed for the longest streak of monthly gains in more than a decade following the news. Brent crude rose above $123 a barrel, a two-month high.

The bulk of current pipeline deliveries are destined for Germany and Poland, which have signaled they will wean themselves off Russian supplies regardless of any EU action. Berlin pledged in writing to uphold the pledge on Monday, one of the people said. If the two countries follow, the total effect, together with the maritime embargo, would be to reduce Russian crude oil sales to the EU by 90% by the end of the year.

European Commission President Ursula von der Leyen speaks to the press on the first day of a special European Union (EU) leaders’ summit at the European Council headquarters in Brussels, Belgium, Monday, May 30, 2022 Photo credit: Valeria Mongelli/Bloomberg.

“We should be able to come back to the question of the remaining 10% of the pipeline soon,” European Commission President Ursula von der Leyen told a news conference on Tuesday.

Sea-based supplies account for about two-thirds of Russian oil imports, and once in place the measure would cost Putin up to $10 billion a year in lost export revenue, according to calculations by Bloomberg. In effect, the ban would force Russia to sell its crude at a discount to Asia, where it is already changing hands at about $34 a barrel cheaper than the price of Brent futures.

Hungarian Prime Minister Viktor Orban, who has accused the EU of forcing the decision on member states, told leaders behind closed doors that the discussion on restricting pipeline imports must take place at EU leaders’ level because it is a political decision and not a technical question. , according to a person close to the meeting. The next summit of EU leaders is scheduled for the end of June.

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Viktor Orban, Prime Minister of Hungary, speaks to the media on the first day of a special European Union (EU) leaders’ summit at the European Council headquarters in Brussels, Belgium, Monday, May 30, 2022. Photo credit: Valeria Mongelli/Bloomberg

The package also proposes a ban on insurance related to the shipment of oil to third countries, but this will not come into force until six months after the measures are adopted, starting from the previously proposed three-month transition, said the sources. This adds to a long list of concessions since the proposal was first put forward by the EU’s executive arm in May.

EU efforts to limit price spikes and Russia’s ability to divert oil exports in the event of a European embargo had already been watered down in previous rounds of talks after a plan to prohibit tankers from transporting oil to third countries.

A plan to ban Russians from buying property in the EU has been dropped from the deal, according to a person familiar with the negotiations. Haggling over the terms of the EU oil embargo has also led other member states to seek exemptions.

Some countries will also have a longer transition for the ban on hydrocarbons transported by sea. For Bulgaria, a period up to June or December 2024 is envisaged, while Croatia could obtain an exemption for imports of vacuum diesel. , which is used to make products such as gasoline and butane.

Last year, Russia shipped around 720,000 barrels of crude a day to European refineries through its main pipeline to the region. That compares to shipping volumes of 1.57 million barrels per day from its Baltic, Black Sea and Arctic ports.

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Other measures in the EU’s proposed sanctions package include:

  • Cut three other Russian banks from the SWIFT international payment system, including Russia’s largest lender, Sberbank.
  • Prohibition on providing consultancy services to Russian companies and trading in a number of chemical products.
  • Sanction Alina Kabaeva, a former Olympic gymnast ‘closely associated’ with Putin, according to an EU document; and Patriarch Kirill, who heads the Russian Orthodox Church and has been a strong supporter of the Russian president and the war in Ukraine. Hungary, however, opposed sanctioning Kirill, the people said.
  • Sanction dozens of military personnel, including those found responsible for war crimes reported to Bucha, as well as companies providing equipment, supplies and services to the Russian armed forces.

–With the help of Katharina Rosskopf, Ewa Krukowska, Michael Nienaber, Andrew Janes, Samy Adghirni, Lenka Ponikelska, Daniel Hornak and Jasmina Kuzmanovic.

Top picture: Drilling operations on a drilling rig, operated by Rosneft PJSC, at the Samotlor oil field near Nizhnevartovsk, Russia, March 21, 2017. Samotlorneftegaz is one of the largest extractive companies of Rosneft, which is developing the central and south-western part of the Samotlor oil and gas field, one of the largest fields in Russia. On the ground, there are approximately 8,300 production wells and more than 2,700 injection wells, with the latest high-tech equipment. Photo credit: Andrey Rudakov/Bloomberg

Copyright 2022 Bloomberg.

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