EU agrees gradual Russian oil embargo, gives Hungary exemptions

European Union leaders agreed to an embargo on Russian crude oils imports. However, Hungary and two other Central European countries that are landlocked have been granted exemptions from the imports of pipelines.

Officials said that the ban was reached overnight, after weeks of negotiations. It aims to stop 90% of Russia's crude oil imports into the 27 nations bloc by year end.

This is Russia's harshest punishment yet for the invasion of Ukraine. It will also affect the EU where energy prices have soared and inflation is at almost double the rate.

Russia was responsible for less than 25% of EU oil imports in 2020. However, Europe accounts for almost half of Russia's crude-oil and petroleum product exports.

German Chancellor Olaf Scholz stated that the sanctions had one goal: to force Russia to end the war and withdraw its troops.

According to Ukraine, they will deprive Russia's military machine of tens or billions of dollars. Read more

Emmanuel Macron, the French president, said that no further sanctions could be imposed, but other leaders criticized the idea of banning Russian gas purchases, which is a major source of energy for Europe.

The European Commission stated that EU countries will have six months to halt imports of seaborne Russian crude oil and eight months to stop imports for refined products.

This timeline will begin once sanctions have been formally adopted by EU states, which is expected to happen this week.

After Prime Minister Victor Orban failed to agree to the deal, other EU leaders agreed to grant Hungary a free pass.

The EU imports two-thirds of Russian oil via tanker, and the remainder through the Druzhba pipe.

Poland and Germany are two of the major pipeline importers. However, they have promised to cease buying Russian oil before the end the year.

The 10% temporarily exempted imports from the embargo on Russian oil are from Druzhba, Slovakia, and Hungary.

Kiril Petkov, the Bulgarian Prime Minister, stated that his country has also been granted an exemption through 2024 because its refinery can only receive Russian crude oil.

After the EU's agreement, oil prices rose, fueling inflation which has already reached 8.1% in eurozone countries this year.

Following an earlier ban on Russian coal, the oil embargo allows the bloc to impose a sixth set of sanctions. This includes the removal of Russia's largest bank, Sberbank (SBMX.MM), from the SWIFT international transfer system.

Ursula von der Leyen, chief of the Commission, stated that the package would also prohibit EU companies from reinsuring or insuring Russian oil-carrying ships.

Volodymyr Zelenskiy, the Ukrainian president, welcomed the new sanctions but criticized the delay of 50 days in the EU's previous package. Read more

Many countries have already expressed interest in a seventh round of negotiations, but Karl Nehammer, Austria's Chancellor, said that it would not include Russian gas. This is a third-essential EU resource.

Nehammer stated that Russian oil is easier to compensate for than gas. Therefore, a gas embargo won't be an issue with the next sanctions package.

Russian traders and analysts said that the phasing in of the embargo allowed Moscow to find new customers in Asia.

Analysts at Sinara Investment Bank stated that although the European Union's measures look very threatening, they don't seem to have a significant impact on Russia's oil sector.

EU leaders asked their executive to look into other options to combat the rising energy prices, in addition to the sanctions. Their conclusions stated that they included "temporary import prices caps", which should have been explored with international partners.

They also supported a plan by the Commission to get rid of all Russian fossil fuels in the EU within a few years. This would include a faster rollout and improvement in saving energy as well as more investments in energy infrastructure.

They also called for improved EU-wide contingency planning to deal with any further gas supply shocks. Moscow cut gas supplies to the Netherlands on Tuesday for rejecting its gas–for-roubles program. It had already cut off Poland and Bulgaria, as well as Finland, from their supply.

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