Jennifer Rankin in Brussels
Tue, 31 May 2022, 10:47 am
What’s been agreed?
After nearly a month of wrangling, the European Union has agreed to a partial ban on Russian oil, with the aim of cutting off funding to the Kremlin’s war machine. According to the European Council president, Charles Michel, three-quarters of Russian oil imports will be immediately affected, rising to 90% by the end of the year.
Which countries have been exempted and why?
The EU is banning seaborne oil immediately, which covers about two-thirds of Russian imports to the EU. Oil transported through the critical Druzhba (“friendship”) pipeline will be exempt from the ban, a key concession to Hungary, which is heavily dependent on Russian oil.
The EU is confident most Russian oil flows will cease by the end of the year, because Germany and Poland, countries on the northern branch of Druzhba, have promised to forgo its supplies. Countries on the southern branch of the Soviet-era pipeline – Hungary, Slovakia and the Czech Republic – will benefit from the temporary exemption.
When will the EU move to a complete oil embargo?
That’s not clear. Ursula von der Leyen, the European Commission president, who has been driving sanctions policy, promised the EU would discuss how to close the loophole “as soon as possible”. Hungary is seeking EU cash to retool its oil refineries that can only take Russian crude. Croatia also needs time to boost supplies to its northern neighbour through the Adria pipeline. EU leaders have avoided giving details on the end date of the exemption for central Europe.
How will the embargo affect Russia’s war machine?
The EU is paying Russia about €1bn a day for oil and gas, an invaluable source of hard currency for the Kremlin in funding its war against Ukraine. A sharp cut in those financial flows deepens Russia’s economic problems in the long term. Some economists have warned, however, that it could have the perverse effect of helping Moscow in the short term, as Russia benefits from high prices. The EU’s lengthy discussions have also given Russia time to find alternative buyers.
What will the impact be on consumers and businesses in Europe?
Motorists and businesses will see higher prices at the pumps, as the embargo feeds into higher oil prices. Governments will find it even harder to manage the already soaring cost of living. After the announcement of the EU oil embargo, the price of a barrel of Brent crude hit $124.10, its highest level since March, although it dropped back a little in later trading. Oil prices have already risen more than 55% this year and are at their highest levels since 2008.
Does the EU have more sanctions cards to play?
Before the EU had even agreed on the oil embargo, some countries were already considering further sanctions against Russia’s biggest export: gas. Before the war, Russia supplied 40% of EU gas, but EU leaders have promised to gradually phase this out. Ukraine’s most outspoken allies, in the EU, Poland and the Baltic states, however, think the EU should now put an end date on Russian gas. That step is far from assured and will be even harder than talks on the unfinished oil embargo.