Russian oil banned under the EU’s new embargo could still end up in Europe despite the restrictions, an energy expert has warned.
Arild Moe, an expert on the Russian energy sector, said the block on oil imports brought by sea could be bypasssed if imports were routed through third countries to reach EU nations.
He said it was possible that Russian oil might find its way to Europe via refineries in these third countries.
After weeks of tough negotiations, the EU agreed on Monday to enact a sixth package of sanctions on Russia over its invasion of Ukraine.
It will end the import of Russian oil to the EU via sea routes. Germany and Poland have also pledged to stop oil imports from Russia via pipeline.
However not all pipeline oil will be banned, following opposition from Hungary.
European Council President Charles Michel said the ban immediately covered more than two thirds of oil imports from Russia, and that it was “cutting a huge source of financing for its war machine”.
Despite the possibility of the embargo being dodged, Professor Moe, of Norway’s Fridtjof Nansen Institute, said the sanctions could still have a damaging effect on Russia’s oil trade.
He pointed out that some other markets were ready to take more Russian oil but that there were limiting factors, especially ship transport.
“Some shipping companies do not take Russian oil, banks are reluctant to finance trades and insurance companies decline to insure or demand a premium,” he told i.
“There are also technical limitations as Russian crude does not always fit with refineries in ‘new’ markets. As a result, Russian oil has had to be sold at a discount to a country like India.”
Professor Moe said it would be difficult to gauge what the situation would be after some years of sanctions, adding that it would take time for Russia to redirect big volumes of Russian oil, but it would also take time for Europe to reducing imports.
“Of course, it will depend on the status of the sanctions, but also on the overall oil supply and demand balance in the world,” he added. “If supplies are tight, Russian oil will likely continue to play a big role. If demand is weak Russian supplies may suffer disproportionally.”
Hungary escapes
According to the Brussels-based Bruegel think tank, three-quarters of Russian oil for Europe is delivered by tankers while a quarter is delivered by pipeline.
In total, the EU ban is expected to cover 90 per cent of Russian imports by the end of the year.
The remaining 10 per cent would be temporarily exempt from the embargo so that Hungary, Slovakia and the Czech Republic have access through the southern section of the Druzhba pipeline, which runs from Russia via Ukraine.
Those countries are being given extra time to wean themselves off crude oil supplies from Russia and seek alternatives.
Germany and Poland have pledged to stop oil imports from Russia via the northern end of the Druzhba pipeline.
Hungarian Prime Minister Viktor Orban – who retains good relations with Vladimir Putin – spent 26 days obstructing the proposed ban over fears an oil embargo would devastate his country’s economy. Hungary imports 65 per cent of its oil via pipelines from Russia.
In a Facebook post late Monday night, he said: “An agreement has been made. Hungary will be freed from the oil burglar!”
Announcing the EU’s propsed sanctions against Russia earlier this month, EU Commission President Ursula von der Leyen suggested there could be a “complete ban” on all imports of Russian crude oil and refined fuels, but it is unclear when this will happen.
Curbing energy price rises
The EU Commission is exploring ways to curb soaring energy prices – caused in part by the war in Ukraine – through temporary price caps and reforms to Europe’s electricity market, a move backed by countries including Spain and Greece.
EU leaders are also set to endorse a Commission plan to phase out Russian fossil fuels through a faster roll-out of renewable energy, improvements in energy-saving and more investments in infrastructure.
While several countries have indicated a seventh round of sanctions against Russia, Austrian Chancellor Karl Nehammer warned against a gas embargo.
Europe is heavily dependent on Russian natural gas – it accounts for 40 per cent of supply, while about 25 per cent of oil imports come from Russia.
“Russian oil is much easier to compensate, gas is completely different, which is why a gas embargo will not be an issue in the next sanctions package,” Mr Nehammer said.
The EU agreed a law this month requiring countries to fill gas storage to at least 80 per cent ahead of next winter in order to create a buffer against supply disruptions. EU gas storage is currently 46 per cent full.
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