EU leaders attending a summit on Monday are struggling to agree on an oil embargo on Russia that exempts a key supply route – a concession aimed at appeasing Hungary that has blocked sanctions for nearly a month.
The watered-down embargo would include oil and petroleum products, but the key would be to allow “temporary” exemptions for pipeline crude, according to draft conclusions seen by the Financial Times.
The verdict is still subject to change, and diplomats have yet to agree on how long any divestitures of pipeline-supplied oil will last.
Keeping the pipeline free from any embargo has been a key requirement for Hungary, which has argued that a ban would put its economy at risk given its reliance on Russia’s Druzhba (Friendship) pipeline for crude.
But en route to the Brussels summit, Hungarian Prime Minister Viktor Orban insisted there was still no deal and he wanted guarantees that Budapest could still get Russian oil from other sources in the event of an “accident” in Druzhba crossing Ukraine .
He also accused the European Commission of “irresponsible” behavior in its proposal to fail to secure Hungary’s supply.
The Baltic leaders, who have been pushing for an oil embargo, stand in stark contrast to Orban – paving the way for what could be heated discussions during the leaders’ dinner.
Estonia’s Prime Minister Kaja Kallas said “how to go about this is up to everyone’s moral compass”, while her Latvian Prime Minister Arturs Kariņš asked Orbán to look at the bigger picture: “It will cost us more, but it’s only money. Ukrainians Lives are being paid.” Asked if he saw any possibility of compromise to help end the war, Karish said: “The right compromise is for Russia to lose the war.”
Arriving at the summit, committee chair Ursula von der Leyen said her expectations that unresolved differences over the terms of the oil embargo would be resolved within the next 48 hours were “low” but could be resolved thereafter.
The embargo on seaborne oil purchases alone would cover about two-thirds of Europe’s imports from Russia.
A move to ban only Russian seaborne crude oil could also distort competition in the EU oil market, with refiners connected to Russian pipelines enjoying a big advantage. Russian oil prices have fallen sharply as European traders have avoided the country’s seaborne crude since the invasion of Ukraine.
If exports through Druzhba reach the pipeline’s maximum capacity of 750,000 barrels per day, it would help Russia earn about $2 billion a month from EU buyers.
Russian Urals crude was trading at around $93 a barrel, while Brent, the international oil benchmark, was trading at $120 a barrel. While Russian oil delivered via Druzhba may not see such a deep discount, depending on the structure of the contract, Hungarian oil group MOL said its refinery’s oil prices had increased since March due to the “widening of the Brent-Ural spread”. Profit margins “surge”.
The draft conclusion of the summit said ministers needed to ensure a “level playing field” for oil purchases.
According to draft legislation seen by the Financial Times, the ban would include restrictions on the re-export of Russian oil to other member states and a ban on services such as financing oil shipments.
Brussels proposed an embargo on purchases of Russian oil in early May, underscoring the EU’s struggle to find a way to extend punishment for Moscow’s war on Ukraine without harming parts of the European economy that depend on Russian energy. The European Union has banned Russian coal, but natural gas is not subject to sanctions.
Two refineries in Germany are served by the Druzhba pipeline, accounting for about 50% of their supply. Poland accounted for 16 percent, Slovakia 13.5 percent, Hungary and Slovenia 11 percent, and the Czech Republic 9.5 percent, according to S&P global subsidiary IHS Markit.
Since Russia’s invasion of Ukraine, volumes shipped through Druzhba have actually increased, with buyers in the EU looking to take advantage of deep discounts or stock up ahead of any embargoes.
While seaborne shipments from Russia to Europe fell by 500,000 bpd, April shipments from Druzhba were up 100,000 bpd compared to January, energy price reporting agency Argus said. will increase again. Shipments from Hungary rose by 65,000 bpd, while imports from Poland rose by 130,000 bpd, helping to offset declines elsewhere.
The fact that refiners connected to Russian pipelines will enjoy a huge competitive advantage due to planned EU sanctions could have a detrimental effect on Russia’s state-owned oil company Rosneft. It owns 54 percent of the Schwetter refinery in eastern Germany, which is directly connected to the Druzhba pipeline.
Any final agreement on the sixth set of sanctions would require ratification by all 27 member states. In addition to the partial oil ban, the package would include removing Sberbank from the Swift messaging system, restrictions on more state-owned Russian broadcasters, and a new round of asset freezes and personal travel bans.
An EU diplomat said it was crucial to keep the bloc’s unity and sanctions package moving forward. “Is there an oil embargo agreement? Yes. Is there an agreement in two phases? Yes. Is there an agreed date? It’s more complicated. We will continue to work on the package.”
Additional reporting by Victor Mallet in Brussels, Eleni Varvitsioti in Athens and Marton Dunai in Budapest