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EU closes in on Russian oil ban — but how tough will it be?

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European Union officials are fine-tuning a phaseout of Russian oil imports, which could be presented to EU countries as early as next week, but it’s still unclear how hard they will dare to squeeze President Vladimir Putin’s core revenue stream.  

Oil income is critical to fueling the war in Ukraine, but the fear among diplomats who want to deal a devastating blow to the Kremlin is that the European measures will be heavily watered down to win support from more hesitant EU countries, such as Germany and Hungary.

An immediate, full-blown ban imposed by the EU on oil is still a no-go for economic powerhouse Germany. Berlin has indicated to other EU capitals it’s ready to consider cutting Russian oil — even if it is not yet able to abandon imports of gas — but only under specific conditions, which are now being discussed with the European Commission.

On Wednesday, Foreign Minister Annalena Baerbock said: “Oil imports will be halved by the summer and will be at zero by the end of the year.”

According to officials and diplomats, any EU oil embargo is set to differentiate between various grades of Russian oil and whether they are delivered to the EU by tanker or by pipeline. In 2020, out of total crude exports of 2.8 million barrels per day from Russia to Europe, 0.7 million bpd came by pipeline and the rest by sea.

As with the recent sanctions against Russian coal, there is also discussion of transition periods to give EU countries time to prepare for any embargo.

The details of the ban could be presented to EU ambassadors as early as next week, diplomats said.

When it comes to the various grades of oil that could be banned, EU refineries are largely configured to work with a Russian oil called “Urals crude” — a blend of heavy oil from the Urals and Volga regions mixed with lighter oil from western Siberia. Targeting that would be a sign of real intent.

Russia also exports lots of heavy fuel oil and vacuum gasoil, which is mainly used to make diesel, and directly supplies 10 percent of the EU’s finished diesel — a touchy subject for an embargo ahead of the peak summer driving season.

But “if the ban consists of too many exceptions, the rest of the world will see right through it,” one EU diplomat said.

At heart, oil sanctions are a play-off between dueling mutual dependencies. The Bruegel think tank calculates that Russia supplied 3.5 million bpd out of total EU imports of 15 million bpd in 2021. It noted that the EU and U.K. together paid Russia €88 billion for those imports. That doesn’t necessarily hand all the leverage to Russia, though. Putin relies on Europe for almost half of his oil exports and diversification would not be easy.

“An oil import ban of course makes sense,” said David Mühlemann, a commodity expert with Public Eye, a Swiss NGO. “That would be a huge market that would be eliminated for Russian oil that could not be replaced overnight,” he added, pointing to a lack of infrastructure both in Russia and buying countries. 

While Russia’s latest offensive in eastern Ukraine is raising pressure for action, Brussels has been keen to keep an oil embargo out of the headlines, partly because fuel prices are such a hot topic in Sunday’s French presidential election, where far-right leader Marine Le Pen, an admirer of Putin, is taking on incumbent Emmanuel Macron.

Crude calculations

If Europe did target Urals crude, the closest ready-to-buy substitutes would be light crude oils coming from Iran and Saudi Arabia — but experts say the main challenge is logistical, since Russian oil arrives directly via pipeline to many refiners, without the need to account for water routes and ship transport delays.

In any case, “all refiners are quite flexible and many are extremely flexible in terms of being able to take a wide variety of crude oils — there are many refineries in Europe that may have for example 60 different crude oils in their tanks, it’s part of the resilience of the liquid fuels industry,” said Alain Mathuren, communication director at FuelsEurope, the association of Europe’s petroleum refiners.

The European Commission has been going back and forth with EU countries to craft a proposal that is politically acceptable for all 27 capitals. 

Hungarian Foreign Minister Péter Szijjártó earlier this week stressed again that Budapest won’t support any sanctions on Russian oil and gas. But the Hungarian concerns are economic, not political, several diplomats said, which paves the way for a political compromise to address those worries, for example via solidarity measures.

While Germany and Hungary have been the most vocal in their opposition against banning Russian oil and gas, a group of other countries including Austria, the Czech Republic, Slovakia and Bulgaria are also concerned about the economic fallout from further energy sanctions.

“The question is: If we ban oil, will it hit Russia or EU economies harder? Russia is selling oil to other countries and will get money that way,” a senior Central European diplomat said. 

The timing for when the EU would actually sign off on a new sanctions package is also being left vague.

“This will not be done overnight,” said one EU senior diplomat. “It’s why the time is ripe to sit back down and hammer out the details, especially if you see the deterioration of the situation on the ground in Ukraine.”

Zia Weise and Leonie Kijewski contributed reporting.

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