The EU’s oil sanctions against Russia were produced in the usual way — a late-night fudge — but it’s still the biggest-ever blow against the Kremlin’s top cash earner.
The embattled government in Kyiv wanted more and faster action, but on Tuesday Prime Minister Denys Shmyhal said he was “grateful” for the EU measures. “The sanctions will impact 75% of Russian oil imports just now. And 90% will be banned by the end of the year,” he tweeted.
But despite a declaration from EU foreign policy chief Josep Borrel that the result is a “landmark decision,” there are still a lot of questions around the ban.
The final legal text will be drawn up for approval this week, diplomats said. The wording agreed by EU leaders on Monday night already leaves considerable wiggle room for countries to keep sending billions of euros to Russia for cheap oil.
From exemptions, loopholes, potential difficulties with enforcement, to the impact on Russia’s ability to wage war, here are six things to know about the bloc’s agreement to sanction Moscow’s oil.
1. The Russian oil ban is partial — for now
The political deal commits to blocking seaborne Russian imports to the EU by the end of the year — which still leaves 30 percent of crude that’s sent by pipeline.
The temporary carve-out for piped oil was a concession mainly extracted by Hungarian Prime Minister Viktor Orbán, who argued that his country’s lack of a seaport meant it would be harder to wean off Russian oil supplied by the Druzhba pipeline.
The deal also promises “emergency measures” like allowing seaborne purchases to ensure security of supply, should those exempted pipeline deliveries stop. This was especially important to get Hungary and Slovakia on board.
EU officials insist their deal still hits Russian President Vladimir Putin where it hurts.
“This immediately covers more than 2/3 of oil imports from Russia, cutting a huge source of financing for its war machine,” said European Council President Charles Michel.
Germany and Poland have pledged to voluntarily stop taking oil from the northern leg of the Druzhba pipeline by the end of this year, which Commission President Ursula von der Leyen argued means that the sanctions really cover “almost 90 percent of all Russian oil imports by the end of the year.”
EU leaders will return to set a timeline for a pipeline delivery phaseout, which von der Leyen said would cover “the remaining 10 percent” flowing on the southern arm of Druzhba to Hungary, Slovakia and the Czech Republic.
But for now, there is no clear end date for when Russian piped flows to the bloc will be banned, and there’s no sign that Orbán is willing to change course.
“Families can sleep peacefully tonight, we kept out the most hair-raising idea,” Orbán said on his Facebook page. “We have reached an agreement that states that countries that receive oil through pipelines can continue to operate their economies under the previous conditions.”
2. The sanctions will take months to go into effect
Analysts point out that the deal will still allow the EU to pay Russia billions of euros for oil and oil products this year while the war in Ukraine rages on.
A ban on seaborne crude kicks in after six months, while refined products will be banned beginning in 2023.
The Czech Republic was granted an exemption from a ban on the resale of Russian oil products through mid-2024.
“As the core aim of sanctions is to weaken Russia’s financial and economic position as soon as possible so [as] to also decrease its military capacity, this might be too little too late,” said Simone Tagliapietra, senior fellow and energy expert at the Bruegel think tank in Brussels.
But even though the ban isn’t perfect, it’s still an unprecedented blow against an industry that’s Russia’s largest foreign currency earner — oil and gas sales revenues together accounted for about 40 percent of Moscow’s federal budget.
3. Can India and China buy up the Russian oil the EU no longer wants?
Western traders were quick to voluntarily stop buying Russian oil soon after Moscow’s invasion of Ukraine, causing the price of Russian oil to nosedive — it’s trading at a $35 discount to the global benchmark.
Europe is Russia’s largest oil customer, buying about half of the 4.7 million barrels per day (bpd) of Russian crude exported last year. But buyers in India, China and Turkey have stepped up purchases, partially offsetting the loss. Russia actually boosted its oil exports by 6 percent in May compared with April.
Russia “will find other importers,” said Mikhail Ulyanov, Russia’s Vienna-based ambassador to international organizations.
China is Russia’s largest single national customer, buying 1.6 million bpd last year. Chinese companies increased that to about 1.9 million bpd in May to fill the void left by major Western traders, according to Vortex Analytics — but Beijing is wary of being over-dependent on a single supplier.
Since the invasion of Ukraine, India has bought three times as much oil from Russia as in the same period last year, according to data from Refinitiv Eikon.
Still, with Europe accounting for 2.4 million bpd of crude, Russia will have to place an enormous volume of oil on other markets once sales to the EU dry up.
4. Policing ships carrying Russian oil will be difficult
The details of how the tanker-carried oil ban will be implemented must still be finalized, but for now Russian crude is making a lot of money for EU-based shipping companies.
A network of mostly Greek-owned ships is taking on volumes from sanctioned Russian vessels at sea, before rerouting the oil to buyers in India and Asia, according to shipping intelligence firm Lloyd’s List.
“Greek owners have stepped in massively … a number of the big, famous Greek shipowners have earned an absolute fortune stepping in and moving Russian crude,” said Richard Meade, editor of Lloyd’s List.
There are other techniques being used to disguise Russian oil’s provenance, such as diluting it at sea with other crudes and relabeling the cargo as “Kazakh,” “Latvian,” or “Turkmenistan” oil blends.
Tankers carrying Russian crude are also turning off identification transponders, making it difficult to track their destination.
“Those who are in the business in terms of [evading] sanctions, they know these techniques,” said Maria Shagina, visiting senior fellow at the Finnish Institute for International Affairs.
“The North Koreans do it. The Iranians do it. I’d be shocked if the Russians don’t,” added a former senior sanctions official at the U.S. Treasury.
Then there’s the matter of punishment: currently sanctions evasion is considered an administrative offense rather than a crime in 15 EU countries. The European Commission has proposed making it an EU-wide crime, but that requires unanimous approval from the bloc’s 27 members.
5. What it means for Russia’s oil industry
Any sales slowdown spells big trouble for Russia’s oil sector; the country lacks significant oil storage capacity, so it may be forced to stop pumping. If that happens, oil fields could be permanently damaged.
“Logically, if Russian oil continues not to find a buyer, then those knock-on effects within a few months, if not sooner, would force the Russian oil upstream crude producers to start cutting back and then we would start to see an erosion of Russian oil revenues,” said Thane Gustafson, an oil expert and professor of Russian politics at Georgetown University in Washington, speaking before the EU embargo was agreed.
There are signs that’s already happening — leaked Russian energy ministry documents indicate a production drop of 830,000 bpd in May compared with February.
That’s due to major trading houses winding down deals to meet a May 15 deadline “to halt all transactions with state-controlled Rosneft, Gazprom Neft and Transneft,” the International Energy Agency said in its May oil market report.
The agency expects Russian curtailment to reach 3 million bpd in the second half of this year as “new embargoes … accelerate the reorientation of trade flows that is already underway and … force Russian oil companies to shut in more wells.”
6. Is gas next?
Oil is Russia’s biggest export, followed by natural gas, where the EU is also a huge buyer. But the chances of the bloc including gas in any future round of sanctions don’t look strong.
It took six rounds of sanctions to imperfectly ban oil, and the EU will have a much tougher time quickly dropping the gas it gets delivered by Russian pipeline.
Some member countries, especially Poland and the Baltics, are pushing for that.
“I have argued from February 24 that we need immediate and full energy sanctions on oil, coal and gas,” said Latvia’s Prime Minister Krišjānis Kariņš.
But the Commission’s REPowerEU plan to wean the EU off Russian gas only aims to do so before 2030 — and there’s little political appetite for going faster.
On Tuesday, Austrian Chancellor Karl Nehammer dismissed the possibility that the EU would now go after Russian gas.
“Gas behaves very differently from oil in terms of security of supply — it is much easier to compensate for oil,” he said. “Therefore, the gas embargo will also not be discussed in a next sanctions package.”
Sarah Anne Aarup, Stuart Lau and Karl Mathiesen contributed reporting.
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