EU Leans Toward Delaying Pipeline Ban to Clinch Oil Deal

EU Leans Toward Delaying Pipeline Ban to Clinch Oil Deal
The bloc is trying to reach an agreement on a new sanctions package targeting Russia for its war in Ukraine.

Some European Union leaders are leaning toward a deal that would ban seaborne oil while temporarily sparing deliveries through a key pipeline to give landlocked Hungary more time, as the bloc tries to reach an agreement on a new sanctions package targeting Russia for its war in Ukraine. 

EU governments are discussing a plan with the European Council and European Commission that would make shipments of oil through the giant Druzhba pipeline exempt for a limited period of time from a broader ban on oil deliveries to the bloc, according to people familiar the matter. 

The compromise would buy time for Hungarian Prime Minister Viktor Orban to iron out technical details of phasing out pipeline supplies to his country, said the people, who asked not to be identified because the talks are private.

Hungary has for several weeks opposed a proposal that would give it until 2024 to give up Russian oil, almost two years longer than what would be required of most other member states. Since unanimity is required for EU sanctions decisions, Hungary has an effective block on the package, which also includes restrictions on Russian banks, consultancy services and buying real estate.

Budapest indicated that at least 770 million euros ($826 million) would be needed to revamp its oil industry, including investments on infrastructure in Croatia, plus an unspecified amount of additional funds to adapt to potential oil price spikes. The commission, as part of a broader strategy to wean Europe off Russian energy, said it would commit infrastructure investment needs of up to 2 billion euros for member states, but even that has yet to convince Hungary.

The EU and member states are expected to continue discussing the various options on Friday, according to the people. Other possibilities have included removing all oil-related measures from the package and continuing with efforts to reach an agreement with Hungary to keep the suite of actions intact, one of the people said. 

Politico reported earlier that some EU leaders were willing to exempt pipeline oil from the sanctions package.

Even a compromise agreement is not certain, as some countries had previously opposed splitting seaborne and pipeline oil over a concern that their supplies would be hit disproportionately. Others worry about further weakening the package, which could lead to other member states seeking exemptions. 

A proposal to ban tankers from shipping Russian oil to third countries anywhere in the world was dropped earlier this month after Greece objected to that provision. The proposed actions on oil also include a ban on European companies from providing services, such as insurance, needed to transport oil to third countries around the world.

Embargo Impact

Exempting pipeline oil from the measures -- which Hungary had previously asked as a condition to back the package -- could dent the impact of the sanctions. Russia shipped about 720,000 barrels a day of crude to European refineries through its main pipeline to the region last year. That compares with seaborne volumes of 1.57 million barrels a day from its Baltic, Black Sea and Arctic ports.

However, the bulk of the pipeline deliveries are to Germany and Poland that have signaled they will wean themselves off Russian supplies regardless of any EU action.

Other measures included in the new EU sanctions proposal include:

  • Cutting three more Russian banks off the international payments system SWIFT, including Russia’s largest lender Sberbank.
  • Restricting Russian entities and individuals from purchasing property in the EU.
  • Banning the ability to provide consulting services to Russian companies and trade in a number of chemicals.
  • Sanctioning Alina Kabaeva, a former Olympic gymnast who is “closely associated” with President Vladimir Putin, according to an EU document; and Patriarch Kirill, who heads the Russian Orthodox Church and has been a vocal supporter of the Russian president and the war in Ukraine.
  • Sanctioning dozens of military personnel, including those deemed responsible for reported war crimes in Bucha, as well as companies providing equipment, supplies and services to the Russian armed forces.

--With assistance from John Follain and Alaric Nightingale.



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