EU to discuss watered down oil embargo on Russia as Hungary holds firm

Oil prices rose as traders closely watched the prospect of the EU agreeing to impose a ban on Russian oil imports.

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The European Union will continue Monday to work towards an embargo agreement on Russian oil after failed attempts to do so on Sunday.

The talks are largely blocked by Hungary, a major user of Russian oil and whose leader Viktor Orban maintains friendly relations with Russian Vladimir Putin.

Over the weekend, Budapest signaled its support for a European Commission proposal that would apply sanctions only to Russian oil brought into the EU by tankers, allowing landlocked energy importers that are Hungary, Slovakia and the Czech Republic to continue to receive their Russian oil by pipeline until alternative sources can be found. The talks, however, have been stalled by Hungary’s requests for EU funding.

A spokesman for the European Commission, the EU’s executive arm, declined to comment on the pending proposals.

About 36% of EU oil imports come from Russia, a country that plays an outsized role in world oil markets.

Admittedly, Russia is the world’s third-largest oil producer, behind the United States and Saudi Arabia, and the world’s largest exporter of crude to world markets. It is also a major producer and exporter of natural gas.

Oil prices rose Monday morning as market participants closely watched the prospect of the world’s largest trading bloc agreeing to impose a ban on Russian oil imports.

International benchmark Brent futures traded up 0.8% at $120.41 a barrel in London, while US West Texas Intermediate futures traded higher 0.9% to $116.15.

Energy prices, already high at the start of this year, have soared since Putin launched the war against Ukraine in late February.

“We just have to do it”

The proposed sanctions on oil imports would be part of the EU’s sixth sanctions package against Russia since it invaded Ukraine nearly 100 days ago.

The previous five sets of measures included restricted access to capital markets, freezing Russian central bank assets, excluding Russian financial institutions from SWIFT, and banning imports of Russian coal and other raw materials, among others.

Talks to impose an oil embargo have been underway since the beginning of the month, although no tangible progress has been made since European Commission President Ursula von der Leyen said member states would ban all the Russian oil in Europe.

“Today we are tackling our dependence on Russian oil. And let’s be clear, it won’t be easy because some member states are heavily dependent on Russian oil, but we just have to do it,” said von der Leyen in the European Parliament. May 4, drawing applause from lawmakers.

EU’s von der Leyen said the bloc needed to address its dependence on Russian oil.

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It was hoped the leaders could reach an agreement in time for their Monday-Tuesday summit in Brussels, Belgium, to illustrate the bloc’s unity in response to the Kremlin assault. Failure to strike any kind of deal would likely be heralded as a victory for Putin.

Ukrainian officials have repeatedly insisted that the EU impose a total embargo on Russian oil and gas, as energy-importing countries continue to fund Putin’s war chest daily with oil and gas revenues. .

Analysis by the Transport and Environment campaign group shows that Russia’s military might is bolstered by $285 million in oil payments made every day by European countries.

Indeed, Russian oil and gas revenues were believed to be responsible for around 43% of the Kremlin’s federal budget between 2011 and 2020, underscoring how central fossil fuels play for the Russian government.

“Since Russia is a major producer and exporter of crude oil and refined products, a sales embargo would cause significant financial difficulties,” said Tamas Varga of oil broker PVM.

“On the other hand, in the absence of firm additional retaliatory measures, the EU is still financing Russia in the conflict. In the first three months of the war, it acquired energy worth 60 billions of dollars, which is hardly a recipe for causing financial stress for the invader,” Varga said.

“That the EU admits itself. What is seriously discussed is whether sanctions are the best way to punish Russia or [whether] imposing tariffs would be more effective,” he added.

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