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The European Union is discussing the idea of temporarily exempting Russian oil supply via the Druzhba pipeline from a ban on imports of Russia's crude, as leaders are trying to persuade Hungary to drop its opposition to an embargo, Bloomberg reported on Friday, quoting sources with knowledge of the discussions.
Some EU leaders are inclined to accept an exemption of Russian oil deliveries via the pipeline that delivers oil to Germany and several central European countries, including Hungary—if indeed this is the price for getting Hungary on board with an oil embargo on seaborne imports of Russian oil, the sources say.
The temporary exemption could give Hungary more time to draft a plan on how to phase out Russian oil imports, according to Bloomberg's sources.
EU member states continue to discuss options for reaching a deal—which needs to be unanimous—on an embargo on imports of Russian oil.
In early May, the European Commission officially proposed a full ban on Russian crude and oil product imports, to come into effect by the end of the year. But the EU is still scrambling to find a common position, trying to persuade Hungary to drop its opposition to an embargo.
Hungary—whose Prime Minister Viktor Orban held close ties with Putin before the Russian invasion of Ukraine—has said it would need hundreds of millions of dollars to adapt its refining and pipeline industry to accommodate a stop to Russian oil imports.
This week, top Hungarian officials said the country is unwilling to discuss the potential ban at the EU summit on May 30 and 31.
EU diplomats had hoped that the summit could reach a unanimous decision on a ban on Russian oil, to be phased out over six months and with exemptions for central European countries, including Hungary, Slovakia, and the Czech Republic.
However, Orban asked in a letter to the President of the European Council, Charles Michel, that the oil embargo be removed from the topics of discussion at the summit, according to the document dated March 23 and obtained by Reuters.
On Wednesday, Hungarian Foreign Minister Peter Szijjarto said that if the ban is on the agenda next week, it "would run the serious danger of dismantling European unity," Argus reported.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.
The Hungarian Prime Minister Viktor Orban even asked the President of the European Council, Charles Michael to remove the ban from the agenda of the EU summit on May 30 and 31 saying he is unwilling to discuss the ban. This isn’t the attitude of someone willing to compromise on the issue. Hungary is going to sink it.
If this is the case, wouldn’t be more sensible for the inept EU to forgo a ban on Russian oil and gas imports and start gradually reducing its dependence on Russia over the next 10 years it could take it to achieve that goal if ever?
Every time the EU opens its mouth about the ban, the oil price shoots upward causing the hapless EU to pay a much higher import bill than before it put its foot in its mouth.
Even if the EU bans Russian oil, the 5.0 million barrels a day (mbd) of Russian oil and petroleum products exports to the EU won’t be short of buyers particularly in the Asia-Pacific region.
The combined crude oil imports of China and India amount to more than 17.0 mbd compared with 14.6 mbd for the EU. This means that China and India are able to absorb all the Russian oil unwanted in the West. In fact China and India are competing with each other for Russian oil exports.
The claim that buyers, governments, international trading houses, and oil majors are all avoiding dealing with Russian oil is a huge lie. If this was true, we would have seen Brent crude heading towards $140-$150 a barrel.
There is no replacement now or for the foreseeable future for 8.0 mbd of Russian oil exports. The alternative is a disastrous global energy crisis with Brent crude hitting $150 or even $200 a barrel.
And guess who would be the biggest losers: the United States and the EU. The United States imports more than 9.0 mbd so its economy will be the most vulnerable to an oil price shock. As for the EU, its economy will shrink by a few percentage points.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London