EU leaders have reached an agreement to ban 90% of Russian crude by the end of 2022.
Joe Clamar | AFP | Getty Images
Oil prices jumped after European leaders reached an agreement late Monday to ban 90% of Russian crude by the end of the year.
During Asian hours on Tuesday, U.S. crude futures for July rose 2.81% to $118.29, while Brent crude futures were up 0.93 % at $122.80. Contracts for August also traded higher: U.S. crude rose 2.84% to $115.42 and Brent rose 1.17% to $118.98 a barrel.
The deal resolves a stalemate after Hungary initially suspended talks. Hungary is a big consumer of Russian oil and its leader, Viktor Orban, has friendly relations with Russian Vladimir Putin.
Charles Michel, President of the European Council, said the move would immediately affect 75% of Russian oil imports.
The embargo is part of the European Union’s sixth sanctions package against Russia since it invaded Ukraine. Talks to impose an oil embargo have been underway since the beginning of the month.
“The European Council agrees that the sixth sanctions package against Russia will cover crude oil, as well as petroleum products, delivered from Russia to Member States, with a temporary exception for crude oil delivered by pipeline,” according to a statement dated 31 May of the European Council.
The European Council added that in the event of “sudden interruptions” in supply, “emergency measures” will be introduced to ensure security of supply.
This temporary exception covers remaining Russian oil not yet banned, European Commission President Ursula von der Leyen told a news conference.
“We have agreed that the Council will come back to the subject as soon as possible in one way or another. So it is something that we will come back to and still have to work on, but it is a big step. before, which we did today,” she said, referring to the temporary exemption.
Von der Leyen explained that the temporary exemption was granted so that Hungary, as well as Slovakia and the Czech Republic – all connected to the southern branch of the pipeline – would have access that they cannot easily replace.
About 36% of EU oil imports come from Russia, a country that plays an outsized role in world oil markets.
The ban could heighten concerns about an already tight energy market. Energy prices have soared over the past year, which has contributed to a turbulent inflationary environment in many countries.
“Although pipeline imports were not included in this agreement, an embargo on oil imports by sea is still significant, accounting for around two-thirds of EU oil imports from Russia,” Vivek Dhar, director of mining and energy products research at the Commonwealth Bank of Australia, wrote in a note after the news.
“A new ban on Russian crude delivered by shipments will tighten already tight supply amid growing demand due to the start of the driving season in [the] United States,” wrote Avtar Sandu, senior director of commodities at trading platform Philip Nova.
Meanwhile, OPEC+ is expected to stick to its original plan of a modest July increase of 432,000 barrels per day, Sandu added.
– CNBC’s Natasha Turak contributed to this report.