ANALYSIS: EU Russian Oil Embargo – What’s the hold-up?

Analysis details (14:14)

LONG-STORY-SHORT:

• As part of the sixth sanctions package against Russia, European Commission President von der Leyen on May 4th proposed a gradual ban on Russian oil imports alongside oil products by year-end, with the ban aimed at pipeline and seaborne crude and refined products.


• The proposal received pushback from Hungary, Slovakia, the Czech Republic, and Greece amid their high reliance on Russian oil imports (see figure below) – with Hungary the most outspoken against the proposal.


• EU Ambassadors met on Wednesday 11th May but failed to reach an agreement. “Some [are] starting to think this is going to need an EU leader meeting to get this through - a demand Orban made at [the] start and then placed on standby.", according to WSJ’s Noman – participants are now on the lookout for such a meeting.
  

WATERED DOWN VERSION: The European Commission initially proposed an extension of the exemption from the ban of Russian energy to Hungary and Slovakia until the end of 2024, according to an EU diplomat. The concerns from Hungary, Slovakia and the Czech Republic arise mainly from the fact they are all linked to Russia’s Soviet-era Druzhba pipeline. Hungary wanted a five-year extension and suggested it will not support proposals that undermine its energy security. The embargo as it stands requires the support of all 27 member states to be approved, Hungary said it will veto the EU's proposal to ban imports of Russian oil. Note, under a draft upcoming EU proposal cited by FT and Bloomberg, the EU expects extra investments of EUR 195bln between now and 2027 in its bid to wean off Russian energy.

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  HUNGARY: Hungarian Foreign Minister said the only way it will agree to a Russian oil embargo is if it solely relates to maritime shipments, pipeline shipments should be fully exempted; this is the stance Hungary will maintain. Recent reports via Politico suggested EU officials are considering offering Hungary financial compensation, in exchange for joining the EU plan to ban Russian oil imports; however, some nations are reluctant to do this - reportedly amid concerns over financing the compensation. The Hungarian Foreign Minister said they have made it clear to the European Commission that they can only support oil sanctions if they are offered a solution to the problems it would create for Hungary.


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  SLOVAKIA: Slovakia said it will seek an exemption from any embargo on Russian oil agreed by the European Union. Slovakia gets nearly all its imported crude from Russia, namely via the Druzhba pipeline. Last week, their reserves stood at 120-days worth.


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  CZECH REPUBLIC: The Czech Republic is negotiating an exemption extension until June 2024 – around the time by which the government expects to be connected to the Transalpine Pipeline.


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  GREECE/MALTA: Greece and Malta opposed banning EU vessels from carrying Russian oil. Brussels subsequently shelved plans to ban EU ships from carrying Russian crude.

RUSSIAN GAS HALT: Ukraine remains a major transit route for Russian gas to Europe. Ukraine's gas system operator, GTSOU, declared a "force majeure" on Russian gas shipments via the Sokhranivka route (which accounts for about a third of Russian gas transited through Ukraine) from Wednesday 11th May. The reason cited was the Russian military’s aggression in the area. GTSOU suggested gas can be rerouted via another entry point – Sudzha. Gazprom is said to have warned that this is not technically possible. Germany and Slovakia suggested their gas supplies remain undisturbed for now.

FIGURES:

• Import dependence on Russian oil (pink) and oil products (orange). 

11 May 2022 - 14:13- EnergyGeopolitical- Source: Newsquawk