6 things to know about the EU ban on Russian oil – POLITICO
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The EU oil sanctions against Russia have been produced in the usual way – a late night fudge – but it is still the biggest blow ever to the Kremlin’s main revenue.
Kyiv’s beleaguered government wanted more and faster action, but on Tuesday Prime Minister Denys Shmyhal said he was “appreciative” of EU action. “The sanctions will impact 75% of Russian oil imports today. And 90% will be banned by the end of the year,” he said. tweeted.
But despite a statement by EU foreign policy chief Josep Borrell that the outcome is a “historic decision”, there are still many questions surrounding the ban.
The final legal text will be drafted for approval this week, diplomats said. The wording agreed by EU leaders on Monday evening already leaves considerable leeway for countries to continue sending billions of euros to Russia for cheap oil.
From exemptions, loopholes, potential enforcement difficulties, to the impact on Russia’s ability to wage war, here are six things to know about the bloc’s deal to sanction Moscow’s oil.
1. Russian oil ban is partial – for now
The political agreement commits to blocking Russian imports by sea to the EU by the end of the year, which still leaves 30% of crude transported by pipeline.
The temporary ban on oil by pipeline was a concession mainly extracted by Hungarian Prime Minister Viktor Orbán, who argued that the lack of a seaport in his country meant that it would be more difficult to wean off Russian oil supplied by the Druzhba oil pipeline.
The agreement also promises “contingency measures” like allowing maritime purchases to ensure security of supply, if these exempt pipeline deliveries stop. This was particularly important for boarding Hungary and Slovakia.
EU officials insist their deal still hits Russian President Vladimir Putin where it hurts.
“This immediately covers over 2/3 of oil imports from Russia, cutting off a huge source of funding for its war machine,” said President of the European Council Charles Michel.
Germany and Poland have pledged to voluntarily stop extracting oil from the northern branch of the Druzhba pipeline by the end of this year, which, according to Commission President Ursula von der Leyen, means that the sanctions actually cover “nearly 90% of all Russian oil imports by the end of the year.”
EU leaders will return to set a timetable for phasing out delivery of the pipeline, which von der Leyen said would cover “the remaining 10%” flowing on the southern arm of Druzhba to Hungary, Slovakia and Turkey. Czech Republic.
But as of yet, there is no clear end date for the ban on Russian flows to the bloc, and there are no signs that Orbán is ready to change course.
“Families can sleep peacefully tonight, we’ve discarded the scariest idea,” Orbán said on his Facebook page. “We have reached an agreement that states that countries that receive oil through pipelines can continue to operate their economies under the previous conditions.”
2. Sanctions will take months to take effect
Analysts point out that the deal will still allow the EU to pay Russia billions of euros for oil and petroleum products this year as the war in Ukraine rages on.
A ban on maritime crude comes into effect after six months, while refined products will be banned from 2023.
The Czech Republic has obtained an exemption from the ban on the resale of Russian petroleum products until mid-2024.
“Since the main objective of the sanctions is to weaken the financial and economic position of Russia as soon as possible in order to [as] to also decrease its military capability, it might be too little too late,” said Simone Tagliapietra, senior researcher and energy expert at the Bruegel think tank in Brussels.
But even if the ban isn’t perfect, it’s still an unprecedented blow to an industry that is Russia’s biggest foreign exchange earner – revenue from oil and gas sales together accounted for around 40% of the Moscow federal budget.
3. Can India and China buy the Russian oil the EU no longer wants?
Western traders were quick to voluntarily stop buying Russian oil soon after Moscow invaded Ukraine, causing the price of Russian oil to plummet – it is trading $35 below the global benchmark .
Europe is Russia’s biggest oil customer, buying about half of the 4.7 million barrels per day (bpd) of Russian crude exported last year. But buyers in India, China and Turkey stepped up their purchases, partially offsetting the loss. Russia actually increased its oil exports by 6% in May compared to April.
Russia “will find other importers” said Mikhail Ulyanov, Russian Ambassador to International Organizations based in Vienna.
China is Russia’s biggest domestic customer, buying 1.6 million bpd last year. Chinese firms increased that figure to around 1.9 million bpd in May to fill the void left by major Western traders, according to Vortex Analytics – but Beijing is wary of being too reliant on a single supplier.
Since the invasion of Ukraine, India has bought three times more oil from Russia than in the same period last year, according to data from Refinitiv Eikon.
Yet, with Europe accounting for 2.4 million bpd of crude, Russia will have to place a huge volume of oil in other markets once sales to the EU dry up.
4. Surveillance of vessels carrying Russian oil will be difficult
Details of the implementation of the oil tanker ban have yet to be finalized, but for now Russian crude is making big money for EU-based shipping companies.
A network of mostly Greek-owned vessels is absorbing volumes from sanctioned Russian vessels at sea, before redirecting the oil to buyers in India and Asia, according to maritime intelligence firm Lloyd’s List.
“Greek shipowners have stepped in massively…a number of large and famous Greek shipowners have made absolute fortunes by stepping in and shipping Russian crude,” said Richard Meade, editor of Lloyd’s List.
Other techniques are used to disguise the provenance of Russian oil, such as diluting it at sea with other crudes and renaming the cargo to “Kazakh”, “Latvian” or “Turkmen” oil blends.
Tankers carrying Russian crude also turn off ID transponders, making it difficult to track their destination.
“Those who are in the business in terms of [evading] sanctions, they know these techniques,” said Maria Shagina, visiting senior researcher at the Finnish Institute of International Affairs.
“The North Koreans do it. The Iranians do. I would be shocked if the Russians didn’t,” added a former senior US Treasury sanctions official.
Then there is the question of the sanction: currently circumventing sanctions is considered an administrative offense rather than a crime in 15 EU countries. The European Commission has proposed making it an EU-wide crime, but that requires the unanimous approval of the bloc’s 27 members.
5. What this means for the Russian oil industry
Any slowdown in sales means big problems for the Russian oil sector; the country lacks significant oil storage capacity, so it could be forced to stop pumping. If this happens, the oil fields could be permanently damaged.
“Logically, if Russian oil continues to not find a buyer, then these ripple effects in a few months, if not sooner, would force Russian upstream crude oil producers to start cutting back, and then we would start to see a erosion of Russian oil revenues,” said Thane Gustafson, an oil expert and professor of Russian politics at Georgetown University in Washington, speaking ahead of the EU embargo agreement.
There are signs already happening – leaked documents from Russia’s energy ministry show an 830,000 bpd drop in production in May compared to February.
This is due to major trading houses ending their agreements to meet the May 15 deadline “to stop all dealings with state-controlled companies Rosneft, Gazprom Neft and Transneft”, the official said. International Energy Agency in its May Oil Market Report.
The agency expects the Russian reduction to reach 3 million bpd in the second half of this year as “new embargoes…accelerate the redirection of trade flows that is already underway and…force companies Russian oil companies to close more wells”.
6. Is gas next?
Oil is Russia’s main export product, followed by natural gas, of which the EU is also a major buyer. But the chances of the bloc including the gas in a future round of sanctions don’t seem strong.
It took six rounds of sanctions to imperfectly ban the oil, and the EU will find it much harder to quickly give up the gas delivered to it through the Russian pipeline.
Some member countries, notably Poland and the Baltic countries, are pushing in this direction.
“I have argued since February 24 that we need immediate and comprehensive energy sanctions on oil, coal and gas,” Latvian Prime Minister Krišjānis Kariņš said.
But the Commission’s REPowerEU plan to wean the EU off Russian gas only aims to do so before 2030 – and there is little political appetite to go any faster.
On Tuesday, Austrian Chancellor Karl Nehammer ruled out the possibility of the EU now taking on Russian gas.
“Gas behaves very differently from oil in terms of security of supply – it’s much easier to offset oil,” he said. “Therefore, the gas embargo will also not be discussed in an upcoming sanctions package.”
Sarah Anne Aarup, Stuart Lau and Karl Mathiesen contributed reporting.
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