EU countries agree on partial embargo for Russian oil

The President of the European Commission, Ursula von der Leyen, has got herself in trouble with the sixth package of sanctions against Russia. She had already presented it at the beginning of May, but it took almost a month for all 27 EU countries to back it. Only on Tuesday night did the heads of state and government agree on the package and the partial embargo on Russian oil at an extraordinary summit in Brussels.

Targeting two-thirds of Russian oil supplies

The members of the European Council agree that the sixth set of sanctions against Russia is based on both to cover both crude oil and petroleum products. By the end of the year there should be no more imports. However, as mentioned beforehand, there will be an exception for oil that flows into the EU through pipelines.

“We want to stop the Russian war machine,” said EU Council President Charles Michel during the night in Brussels. The sanctions are intended to increase the pressure on the Kremlin.

First of all, this package of measures increased the pressure within the EU. Because the unity among the member states, which has been demonstratively shown up to now, has clearly cracked. This is also due to the fact that this time von der Leyen had quite obviously not sufficiently secured her proposals with the member states before they were launched.

While Germany, after some hesitation, gave up its resistance to an oil embargo in early May, Hungarian Prime Minister Viktor Orban opposed the measure to the end. However, since unanimity is required for their adoption, he has been driving the Commission in front of him in recent days and has demanded increasingly expensive concessions from Brussels for his yes.

Now von der Leyen has managed with great difficulty to save the core of the sixth sanctions package.

After all, a full two-thirds of all Russian oil imports are brought to the EU by ship, including to the port of Rotterdam. The rest flows through the Druzhba («Friendship») pipeline to Germany, Poland, Slovakia, the Czech Republic and Hungary.

Hungary fears “accidents” in Ukraine

Budapest pointed out that its refinery could only process Russian oil. In addition, access to alternatives is made more difficult due to the lack of access to the sea. Now it is up for discussion that in the future more oil will flow through the Adriatic Pipeline should flow from Croatia. But Orban apparently not only wants money from Brussels, but also assurances that deliveries from Croatia will be reliable.

The Druzhba pipeline: an important artery for Europe’s oil supply

Before the summit, he made further demands. Should there be an “accident” on the Druzhba pipeline in Ukraine, he still wants to be able to buy Russian oil. The southern Druzhba pipeline, to which Hungary is connected, runs through Ukraine. And Budapest apparently fears that Ukraine, intentionally or unintentionally, could damage the pipeline and thus cut off Hungary from Russian oil.

The conclusions respond to this desire. It states that in the event of sudden supply interruptions, immediate measures would be taken to ensure security of supply.

Summit participants had speculated that Orban would also tie his approval of the sixth package of sanctions to the release of money from the Corona recovery fund. Brussels is currently holding back seven billion euros from this pot because of serious corruption allegations against Hungary. According to an EU diplomat, these funds should remain blocked. At this point, the Commission does not want to be blackmailed by Orban, especially since aid for energy security is tied to the same constitutional criteria.

The partial embargo on Russian oil means that not only Hungary, but also Germany, Poland, the Czech Republic and Slovakia can continue to obtain cheap oil from Russia for the time being, while the other EU countries have to buy significantly more expensive oil from other sources due to higher prices.

This has caused resentment among the member states. However, German Chancellor Olaf Scholz said after the summit: “For us as well as for the Polish government, we will continue our efforts to be able to do without importing Russian oil products by the end of the year.” According to Scholz, this decision will not be affected by the exception of the Druzhba pipeline. Therefore, according to von der Leyen, 90 percent of oil imports from Russia are affected by the embargo.

Leaders have also tasked the Commission with ensuring that the single market is on a level playing field despite the patchy oil embargo. In addition, countries that are still allowed to purchase cheap Druzhba oil are forbidden from reselling it and thus pocketing the difference to market prices.

As early as June, the EU could deal again with the temporary exemption for pipeline crude oil. Before the meeting in Brussels, von der Leyen said that she did not expect an agreement on a full embargo in the next 48 hours, but that she assumed that it would succeed “afterwards”.

Agreement thanks to softening of sanctions also for ships

Von der Leyen emphasized that the sixth package should also exclude the largest Russian bank, Sberbank, from the Swift international payment information system. There are also two other banks, which appear to be the Credit Bank of Moscow and the Russian Agricultural Bank.

Here, too, the EU leaves a loophole open. The Kremlin recently decided that natural gas deliveries must be processed through Gazprombank in the future. And this energy-focused bank remains with Swift.

Russia requires European buyers to pay in rubles. However, this contradicts the contracts, which are usually denominated in euros or dollars. Specifically, importers must open a ruble account with Gazprombank in addition to a foreign currency account. After transferring the amount in euros or dollars, the currency is converted into rubles and credited to the ruble account.

Countries that refuse the changed payment mechanism will no longer receive natural gas from Russia. That hit first Poland and Bulgarialater Finlandand on Monday it became known that the state-controlled Gazprom concern also Netherlands no longer want to deliver. Next up is the Kremlin Denmark turn off the tap. Other states like Germany and Italy have accepted the mechanism and still take the position that they do not pay in rubles.

Von der Leyen emphasized on Tuesday night that EU companies are also no longer allowed to provide services for Russian customers – for example auditors and consultants – and that other Russian state media should be censored. These are likely to be Rossija RTR, Rossija 24 and TV Center International.

Von der Leyen suffered a defeat in the blockade of Russian oil for third countries. She wanted to ban EU ships from transporting oil from Russia in the future. Brussels would thus have prevented the country from simply selling the quantities no longer in demand from Europe elsewhere and possibly even more expensively. But above all Malta and Greece, the two countries with the largest fleets of oil tankers, resisted. Subsequently von der Leyen dropped the idea.

The only thing left in the sixth package of sanctions is the ban on EU companies offering insurance and reinsurance for Russian ships.

Some heads of state and government are already eyeing the seventh package of sanctions. An EU diplomat concedes that this is extremely difficult to achieve in view of a possible gas boycott.