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European Union Pledges to Curb Oil Purchases From Russia

Agreed-to embargo would exempt imports via pipeline and mark a sixth sanctions package
European Council President Charles Michel expects senior EU officials to meet Wednesday to sign off on the oil embargo. PHOTO: NICOLAS MAETERLINCK/ZUMA PRESS

European Council President Charles Michel expects senior EU officials to meet Wednesday to sign off on the oil embargo. PHOTO: NICOLAS MAETERLINCK/ZUMA PRESS

BRUSSELS—European Union leaders said for the first time that they would impose an oil embargo on Russia over its invasion of Ukraine, taking a big step forward in an economic fight against Moscow that is already reverberating in global markets.

The embargo would include an exemption for oil delivered from Russia via pipelines, an amount that makes up one-third of EU oil purchases from Russia. EU officials said that by the end of this year, the embargo would cover 90% of previous Russian oil imports. It would be phased in over several months.

Senior EU officials are expected to meet Wednesday to sign off on the oil embargo, according to European Council President Charles Michel, which would unlock a sixth sanctions package on Russia. The moves include the removal of three Russian banks—including the largest, Sberbank—from the Swift financial-transactions network; a ban on three leading Russian broadcasters in the bloc; and targeted sanctions against Russian military officials and other leading figures.

“Agreement to ban export of Russian oil to the EU,” Mr. Michel said late Monday on Twitter. “This…covers more than 2/3 of oil imports from Russia, cutting off financing for its war machines.”

EU leaders labored into the night to agree to broad terms of the oil embargo, which had faced opposition from leaders of countries highly dependent on Russian crude, especially Hungarian Prime Minister Viktor Orban.

Prospects of an EU agreement to curtail purchases of Russian oil, combined with China’s tentative emergence from Covid-19 shutdowns, earlier Monday pushed oil prices to their highest level in more than two months.

EU officials for almost two months have haggled over how to constrict energy imports from Russia, for which the bloc pays tens of billions of dollars monthly. European leaders have declared their eagerness to stop funding the Russian government and its ability to wage war in Ukraine. But reliance on Russian gas and oil in many EU countries has impeded those efforts.

Ukrainian President Volodymyr Zelensky, addressing the EU summit by video Monday evening, told the leaders that “all quarrels in Europe must end” because internal discord “only encourages Russia to put more and more pressure on you, on the whole of Europe.”

Underlying the EU debate is concern that the public support for sanctions could weaken if an oil embargo drives already high energy bills even higher, hitting a European economy still recovering from the coronavirus pandemic.

Germany, the EU’s biggest economy, depends heavily on imports of Russian natural gas, which flows through pipelines. Berlin and some other capitals have said they can’t quickly replace plentiful Russian gas. However, Germany has rapidly reduced its purchases of Russian oil in recent weeks.

EU leaders also agreed to provide Ukraine with €9 billion, or about $9.7 billion, in loans and grants to pay its bills in coming months, matching similar funding from the U.S.
 

Monday’s summit of European Union leaders in Brussels included a video address by Ukrainian President Volodymyr Zelensky.PHOTO: OLIVIER MATTHYS/ASSOCIATED PRESS
Monday’s summit of European Union leaders in Brussels included a video address by Ukrainian President Volodymyr Zelensky.PHOTO: OLIVIER MATTHYS/ASSOCIATED PRESS


Many of the EU’s 27 countries could more easily stop importing oil from Russia, which is imported through pipelines and by ship. But landlocked Hungary has balked at such a ban, saying the economic pain would be too great.

Arriving for the summit Monday afternoon, Mr. Orban warned he may not sign up to an oil embargo pledge.

EU officials have held protracted negotiations in recent weeks to outline an oil embargo that could win support from Mr. Orban, who has close ties to Russian President Vladimir Putin. There is no specific date for ending the exemption for pipelined oil and it could potentially last for years for Hungary and some of its neighbors.

Mr. Orban has repeatedly raised objections to the proposed embargo, such as the economic cost of weaning his country off Russian oil and the fact that the pipeline connection runs through potential war zones in Ukraine. Hungary has refused to join those providing military aid to Ukraine, angering its traditional allies in Europe. Some other EU countries, meanwhile, objected to granting Hungary favors.

Exempting pipeline oil, Mr. Orban said, “is a good approach, but we need a guarantee that in the case of an accident with a pipeline running through Ukraine…we have to have the right to get Russian oil from other sources. If we get it, it’s fine.”

An EU ban, even with an exemption on pipeline imports, would amount to a significant blow to Russia’s ability to cash in on its prize commodity. As of 2020, about three-quarters of the 2.8 million barrels in crude Russia exported to Europe each day arrived by ship, according to Bruegel, a think tank.

Germany, which imports Russian oil through the northern branch of the Druzhba pipeline, has committed to replacing that crude with alternative supplies by year-end. For Russia, that leaves Hungary, the Czech Republic and Slovakia, which import just 250,000 barrels a day of oil through the southern branch of the pipe, according to the International Energy Agency.

On Tuesday, the summit’s second day, food security will be a new focus, as a result of Russia’s blockading of Ukrainian ports, which has cut off exports from the agricultural powerhouse. Countries in the Middle East and Africa are suffering badly from shortages of Ukrainian grain, food oils and other products.

When EU officials first proposed an embargo to take effect by year-end, they offered Hungary and Slovakia more time to adjust. At the time, most EU officials and diplomats expected the oil embargo to sail through in a few days. But Mr. Orban said he wouldn’t back the measure, claiming it would cost his country’s economy as much as €18 billion.

In the end, Hungary largely won the tug of war, facing no date for the pipeline exemption to end. In an emergency, Hungary and a few other countries will also be able to purchase Russian oil delivered by tankers.

Separate skirmishing over the phase-in for a ban on insuring oil tankers and a proposed ban on Russians buying property in the EU remain to be resolved.

Write to Laurence Norman at laurence.norman@wsj.com, Daniel Michaels at daniel.michaels@wsj.com and Joe Wallace at Joe.Wallace@wsj.com

Author: Editors Desk

Source: WSJ:

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