The European Union plans to ban Russian crude oil over the next six months and refined fuels by the end of the year as part of a sixth round of sanctions to increase pressure on Vladimir Putin over his invasion of Ukraine.
“This will be a complete import ban on all Russian oil, seaborne and pipeline, crude and refined,” European Commission President Ursula von der Leyen said in remarks to the European Parliament. “We will make sure that we phase out Russian oil in an orderly fashion, in a way that allows us and our partners to secure alternative supply routes and minimizes the impact on global markets.”
Hungary and Slovakia, which are heavily reliant on Russian energy and had opposed a sudden cut-off of oil, will be granted a longer timeframe -- until the end of 2023 -- to enforce the sanctions, according to people familiar with the matter.
EU diplomats discussed the sixth package of sanctions Wednesday, which requires unanimity among the 27 members. Hungary objected to the oil phase-out timing, with Foreign Minister Peter Szijjarto saying that the current proposal would undermine its energy security. Slovakia, meanwhile, is asking the EU for a three-year exemption, Economy Minister Richard Sulik told reporters after a government meeting Wednesday.
Greece, Malta and Cyprus raised questions about banning the transport of oil between third countries, saying the move will just help Europe’s competitors, according to two diplomats. The bloc aims to conclude the package by the end of the week, or by May 9 at the latest, the diplomats said.
Germany threw its weight behind the proposal, with Economy Minister Robert Habeck telling reporters on Wednesday that “the transition period is sufficiently long that we can take all precautions to create alternatives to Russian oil in Germany.”
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The EU is also proposing to cut off Sberbank from the international SWIFT payment system, von der Leyen said. Credit Bank of Moscow and the Russian Agricultural Bank will also be included on the banned list, the people said.
The package would also ban property transactions with Russian citizens, residents and entities, with exemptions for EU residents.
The U.K. also announced new sanctions moves on Wednesday with Foreign Secretary Liz Truss saying she’ll cut Russia off from accessing U.K. management consultants, accountants and public relations firms. That move is in line with a key component of the new EU package as well.
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Implementation of the new sanctions plan would dramatically increase the stakes with Moscow as the EU, the single largest consumer of crude and fuel from Russia, seeks to pressure Putin. In 2019, almost two-thirds of the bloc’s crude oil imports came from Russia.
The proposal also bans European vessels and companies from providing services -- including insurance -- linked to the transportation of Russian oil and products globally, the people said. About 95% of the world’s tanker liability cover is arranged through a London-based organization that has to heed European law.
Without such insurance, Russia and its customers would have to find alternatives for risks including oil spills and mishaps at sea that can quickly run into multibillion-dollar claims.
Crude Dependency
The EU also proposed banning the broadcasters Rossiya RTR/RTR Planeta, Rossiya 24/Russia 24 and TV Centre International from EU airwaves, according to the people. The EU already banned RT and Sputnik in March. RT has fought the ban in EU courts.
Von der Leyen said the sanctions would target high-ranking military officers and other individuals who committed alleged war crimes in Bucha and who are carrying out “the siege of Mariupol.” One proposed target is Patriarch Kirill, the head of Russia’s Orthodox Church, according to documents seen by Bloomberg and people familiar with the matter. The list, which still needs to be approved by European governments and could change, also includes family members of Putin’s spokesperson, Dmitry Peskov.
The package would also include banning the services of “accountants, consultants and spin doctors from Europe” to Russian companies, von der Leyen said.
European nations have long agonized over whether they’d be able to withstand being cut off from their top energy suppliers. The EU last year got 27% of its oil imports from Russia -- paying it 99 billion euros ($104 billion) for supplies of fossil fuels as a whole.
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Terminating oil flows is seen as more manageable than disrupting natural gas because alternative sources of crude are easier to find. Gas, by contrast, mostly flows through pipelines. Sea deliveries of liquefied fuel from other countries couldn’t cover the shortfall.
“The EU gradual embargo on Russian oil is a risky bet, as in the short term it might leave Russian revenues high while implying negative consequences for the EU and global economy in terms of higher prices -- not to talk about retaliation risks on natural gas supplies,” said Simone Tagliapietra, a research fellow at the Bruegel think tank.
Diesel, supplies of which were constrained before the war even began, will be a particular pinch point. Now, a record-shattering premium to crude oil and extremely bullish forward curves point to a market that’s screaming for fuel. At the centre of the global crisis is Europe, a region heavily reliant on imports from all over the world -- but most notably, from Russia.
Economists have put forward several estimates of how badly Europe would be hit if it were to lose all Russian energy imports. Silvia Ardagna at Barclays said a full embargo on Russian natural gas may reduce euro-area activity by 4% compared to a baseline scenario, with Germany and Italy more badly hit than Spain and France. According to the IMF, EU output in 2023 would be about 3% lower without Russian oil and gas imports.
For Germany in particular, the Bundesbank has said activity is at risk of shrinking nearly 2% in 2022 if an energy embargo leads to restrictions on power providers and industry. Some analysts have argued that the impact would be lower than that, and that the economy would be able to handle the shock.
Habeck has said his nation has already cut its reliance enough to make at least a full oil embargo manageable. The share of Russian crude in German imports has fallen to about 12% from more than a third before the invasion, he said.
Berenberg economist Holger Schmieding says Europe could phase out Russian oil by year-end without causing shortages and dramatic price increases. Investors are already anticipating such a move.
A ban on Russian oil would still leave the world economy with less supply as it faces growing challenges. Inflation is the fastest in decades in the U.S., Europe and other advanced economies, while wilting confidence among firms and households is sapping growth.
For Russia, an oil embargo would limit the inflow of foreign currency and make “difficult spending cuts necessary,” according to economists at the Institute of International Finance.
