The European Union leaders agreed to cut Russian crude oil imports by as much as 90 percent by the end of the year. The agreement is in principle, and details would still need to be clarified.
Per a Reuters report, some 65 percent of Russian oil exports to the European Union reach the continent by tankers, with the rest flowing via the Druzhba pipeline. By the end of the year, Germany and Poland have agreed to stop buying Russian crude from the Druzhba pipeline, which would bring the amount of embargoed Russian oil to 90 percent of the total.
The embargo seeks to first target tanker shipments, which will put those EU members who get their Russian oil this way in a difficult position. For the time being, there is no clarity as to how these EU members will be compensated.
Meanwhile, Hungary, the Czech Republic, and Slovakia will be exempt from the embargo, leaving 10 percent of usual Russian oil flows in place. There was no mention of Bulgaria in the Reuters report, but the southern European state was also part of the group of countries opposing any embargo that could threaten the security of its oil supply.
The European Commission proposed a full oil embargo against Russia in early May as part of its latest sanction package. Hungary, however, immediately and quite vocally opposed it, arguing it would need hundreds of millions of dollars to transform its pipeline and refinery industry. The Central European state relies on Russia for more than 80 percent of its oil.
The following weeks saw active discussions as more EU members heavily reliant on Russian oil followed Hungary's example, with Bulgaria threatening a veto on any embargo proposal unless it received an extension to reduce and eventually eliminate Russian oil imports.
Following the news of the embargo agreement, Brent crude was trading at $122.63 per barrel, with West Texas Intermediate at $117.99 per barrel.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry. More
Comments
Seaborne crude exports were estimated at 1.95 mbd or 65% of Russian crude oil supplies to the EU. The rest amounting to 1.05 mbd were pumped via the Druzhba oil pipeline.
So the EU ban affects only 1.95 mbd of Russian crude oil exports leaving 1.05 mbd to go through via pipeline along with 2.5 mbd of petroleum products, a total of 3.55 mbd.
This will hardly cause President Putin to lose even one minute sleep. Moreover, Russian unwanted crude will easily find its way to China and India. Meanwhile the inept EU will be replacing Russian oil at a price of $130 a barrel in coming months thus adding an annualized $14,24 bn to its oil-import bill.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London