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EU Leaders Aim to Break Oil Ban Impasse With Unity at Stake

·4 min read

(Bloomberg) -- European Union leaders intend to give their political backing to a ban on Russian oil, paving the way for a possible agreement next month on a sixth package of sanctions targeting Moscow for its invasion of Ukraine.

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The bloc’s heads of government are working to enshrine their support for the plan in a joint statement, which could still change before it’s issued during their two-day summit in Brussels on Monday and Tuesday.

The sanctions proposal would halt seaborne imports by early next year, while pipeline supplies would be banned only once the concerns of several landlocked countries are satisfied, according to people familiar with the talks. The leaders’ political support doesn’t mean a deal is imminent and several substantial hurdles remain to any accord.

“It seems to me that we will not reach an agreement today,” Estonian Prime Minster Kaja Kallas told Bloomberg Television on Monday. “We still try to keep the unity and sometimes it was clear in the beginning that it will be more difficult when the sanctions move closer to us.”

Hungarian Prime Minister Viktor Orban, the most vocal opponent thus far of EU oil sanctions, told reporters there was no consensus among EU leaders. He set out two conditions for his support: exemptions for crude oil via pipelines and access to maritime shipments in emergencies if pipelines are blocked.

“This is the guarantee that we need,” Orban said. “If I get my guarantee today then we’re safe.”

The EU’s latest proposal would ban seaborne oil from Russia by early next year while delaying restrictions on imports through the giant Druzhba pipeline, which is Hungary’s main source of crude imports, the people said.

Russian President Vladimir Putin stands to loose about $10 billion a year in oil exports revenues if the EU bans shipments, according to Bloomberg calculations. That’s because Russia would be forced 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.

Halting pipeline deliveries through the northern branch of the Druzhba pipeline to Poland and Germany would cut another $12 billion, based on 2021 volumes and the average Urals price so far this year of $85 a barrel. Russia would continue to earn about $6 billion dollars from its exports to Hungary, Slovakia and the Czech Republic through the southern legs of Druzhba.

EU sanctions require the backing of all member states. Several nations had previously opposed distinguishing between seaborne and pipeline deliveries over a concern that such a split was unfair as it would disproportionately hit their supplies, the people said. Others were worried that the proposed compromises would soften the package too much.

A measure to ban Russians from purchasing real estate in the EU was dropped from the latest version of the text following pressure from Cyprus, according to the people. Haggling over the terms of the EU’s oil embargo has also led other member states to seek exemptions to the proposed package.

If the EU can’t get Hungary on board with the sanctions plan, it would be a significant blow to the bloc’s united stance against Russia and an embarrassment to the European Commission, which announced the oil embargo plan several weeks ago.

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

However, the bulk of the pipeline deliveries are to Germany and Poland, which have signaled they will wean themselves off Russian supplies regardless of any EU action.

The package also includes a ban on insurance related to shipping oil to third countries, but it won’t take effect until six months after the adoption of the measures, from the previously proposed three-month transition, the people said. That adds to a longer list of concessions since the proposal was originally put forward by the European Commission in May.

Bulgaria would get a transition period until June or December 2024 and Croatia could get an exemption for imports of vacuum gas oil that is used in products like gasoline and propane.

Other measures in the proposed EU sanctions package include:

  • Cutting three more Russian banks off the SWIFT international payments system, including Russia’s largest lender Sberbank.

  • Restricting Russian entities and individuals from purchasing property in the EU.

  • Banning the ability to provide consulting services to Russian companies and trade in a number of chemicals.

  • Sanctioning Alina Kabaeva, a former Olympic gymnast who is “closely associated” with Putin, according to an EU document; and Patriarch Kirill, who heads the Russian Orthodox Church and has been a vocal supporter of the Russian president and the war in Ukraine. Hungary, however, is opposed to sanctioning Kirill, the people said.

  • Sanctioning dozens of military personnel, including those deemed responsible for reported war crimes in Bucha, as well as companies providing equipment, supplies and services to the Russian armed forces.

(Updates with chart, cost of sanctions to Russia after sixth paragraph.)

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