Thursday, July 7, 2022

A Russian oil embargo could be in the works if the EU gets it done

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The President of the European Commission, Ursula von der Leyen, announced this week a proposal for the European Union to: impose a gradual embargo on Russian oil as part of the toughest sanctions package to date. The biggest obstacle to such a move? The bloc has yet to agree on when and how those controls will be put in place — not just a sign of division in the bloc’s response to the invasion of Ukraine, but potentially mitigating the embargo’s intended economic blow, at least short-term.

Von der Leyen, who heads the EU’s legislative arm, announced the plan as part of a broader sanctions package, which includes banning Russian propaganda broadcasts in the EU, imposing individual sanctions on Russian generals involved were involved in the Bucha massacre and the besiege at Mariupol in Ukraine, and the removal of three banks, including SberBank – Russia’s largest – from the SWIFT payment system. EU member states such as Germany previously opposed calls to cut off Russian oil, citing the damage this could do to their own economies; von der Leyen addressed those concerns, saying: “Let’s be clear: it won’t be easy. Some member states are heavily dependent on Russian oil. But we just have to work on it.”

Von der Leyen further explained that the embargo will apply to “all Russian oil, by sea and pipeline, crude and refined,” and that the EU will eliminate its dependence on Russian oil “in an orderly manner” by “[phasing] Russian delivery of crude oil within six months and refined products by the end of the year.” But shortly after the announcement, Hungary, the Czech Republic and Slovakia came up with make sure they don’t have enough time to get rid of Russian oil before their extended deadlines, which would wreak havoc on their economies. Hungary, whose leader Victor Orban ties with Russian President Vladimir Putin threatened to reject the EU’s sanctions package if Hungary was not allowed to continue importing Russian crude oil through pipelines. Since EU proposals require unanimity from all member states to implement, the Hungarian veto would torpedo the whole package.

And Greece, Malta and Cyprus brought up their own problems, Reuters reported Friday† Those countries have the largest shipping fleets in the EU; they expressed concern about the effect the embargo would have on their shipping industry. Greek tankers in particular about half of all Russian oil exports shipped in the weeks following the invasion.

“We are against the Russian invasion and of course for sanctions. But these sanctions must be targeted and not selective in serving some member states and exposing others,” Cyprus president Nicos Anastasiades said at a news conference.

Since this weekend negotiations are underway to flip a sanctions package that meets the needs of all member states, but it’s unclear when the bloc will agree on a final deal — and why von der Leyen announced the package before all states agreed.

cafemadrid made several attempts to reach the European Commission for comment on the status of the negotiations, but received no response at press time.

This is the EU’s sixth sanctions package – and the most complicated yet

As von der Leyen said, this is the most important and complex sanction package that the EC is about to impose on Russia for its invasion of Ukraine. That means entering into difficult negotiations and balancing competing needs and priorities.

The Russian invasion of Ukraine on Feb. 24 “called for an embargo almost immediately,” Thane Gustafson, professor of political science at Georgetown University and author of the book Climate: Russia in the era of climate change, cafemadrid told Saturday. “It took a while to put things on the drawing board.” Given the challenge of getting all 27 member states on board with an oil embargo, Wednesday’s announcement actually came about quite quickly; but that also indicates that EC members and leaders are “playing this by ear,” Gustafson said, hence the outcry from Hungary, the Czech Republic, Slovakia and others.

Those countries currently have no energy alternatives to sustain their economies, so Hungary and Slovakia were initially given an extra year – until the end of 2023 – to comply with the embargo. Hungary has requested an exemption for crude oil imports through pipelines, and Slovakia and the Czech Republic are calling for longer transition periods, the report said. the Financial Times. While the details are still up for debate, Reuters coverage on Friday indicated that the EC will extend deadlines for those countries to waive Russian oil and assist with refinery upgrades.

“The most important thing is to get the Hungarians on board,” Gustafson said. “There will be negotiations in both directions,” he told cafemadrid. This is because of the EC’s principle of unanimity, not because Hungary — or, for that matter, Slovakia or the Czech Republic — consumes enough Russian oil to make their participation in the ban economically significant, as Hungarian and Slovak imports are only is responsible for about 6 percent of Russia’s oil imports to the EU, according to Reuters

Will these sanctions deliver the intended blow to the Russian economy?

While Gustafson believes there will be a decision on the oil embargo, “it will be a quiet blow in the short term.” First, there are still countries that will buy Russian oil in the near term – although eventually, Gustafson told cafemadrid, Russia will no longer have the capacity to transport or store enough oil to offset the losses from the EU embargo. , causing the industry to slow production, resulting in a price decline.

But according to the wednesday grouptracking Russian oil exports, fuel price increases have resulted in Russia bringing in about as much money from sales as before the US decision to ban Russian oil imports in March† although the EU is the largest importer of Russian oilcould the staggered transition timeline proposed by the EC give Russia more time to negotiate export to other countries† this is already happening with india, the Washington Post reports

The proposed ban is a major shift in EU policy just two months ago when the bloc refused to join the full US embargo on Russian energy products. At that point, the block unveiled a plan to reduce dependence on natural gas by two-thirds by the end of this year† Wednesday’s announcement was not about that promise or the subject of natural gas at all.

The natural gas issue is certainly complex, and Russia has managed to arm the resource, cutting off flows to Poland and Bulgaria for their refusal to buy it with rubles last month. Part of the problem, Gustafson explained, is that natural gas exports are governed by: long-term contracts who can use “take-or-pay” clauses – as in, a country takes the product or pays for a certain amount, even if it doesn’t take the gas. Closing off access is therefore not just a matter of refusing to buy the goods. Finding an alternative source of natural gas is also not that easy. The infrastructure to replace natural gas imports from Russia with imports from other countries such as the US does not yet exist on the necessary scale — and increased production and use would likely seriously jeopardize climate goals.

In addition, Russia’s natural gas exports — both transports and liquefied natural gas and through pipelines such as the now-sunken Nord Stream 2 — have actually increased since the start of the war, according to the Center for Energy and Clean Air Research

But “the biggest question is Germany,” Gustafson said. Germany, the largest economy in the EU, relies heavily on Russian natural gas to heat homes and power its economy; dismantling that infrastructure without triggering a far-reaching recession will indeed be a delicate negotiation. Germany has long ago developed “very extensive” partnerships with Russia, Gustafson noted, especially after the fall of the Soviet Union. Germany’s thought was that such economic interdependence would bring peace to Europe, which The Daily explained in an episode last month. The invasion of Ukraine undone decades of peace, and Germany’s energy transition will have to undo decades of cooperation with and dependence on Russian resources.

If and when the EC unanimously decides a way forward to free EU member states from dependence on Russian fuel, it is not clear what the desired effect of an oil or general fuel embargo would be. Theoretically, the goal of cutting profits from Russia’s fuel industry is to stop Putin’s war machine from bleeding the Russian economy. However, it could take quite a while for the EU embargo to have such a major impact.

Wednesday’s announcement also doesn’t seem to have changed Putin’s stance. The Kremlin’s response to the embargo proposal was consistent with its stance on Western involvement in the war, Gustafson told cafemadrid: “The dominant response, and certainly the public response, has been defiance and defiance against the West. “

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