EU Sets Harshest Russian Sanctions, Targeting Oil and Insurance

Officials and diplomats say the European Union will impose its toughest sanctions yet on Russia, banning its oil imports and preventing insurers from transporting oil. crude as the West sought to deprive the country of the cash it needed to finance the war. Ukraine and keep its economy running.

The sanctions, which are expected to be completed in the coming days, are harsher than expected. The ban on insurance companies would cover Russian oil tankers anywhere in the world. These sanctions could reduce Russia’s efforts to sell oil in Asia. European companies underwrite much of the world’s oil trade.

The embargo is a high-risk strategy for the EU, forcing the bloc to break its reliance on cheap Russian energy. It has the potential to fuel inflation that is already running at its highest rate in decades on both sides of the Atlantic.

Leaders of EU member states said late on Monday that they had agreed in principle to ban Russian crude and refined fuels to ships, which account for at least two-thirds of imports from Russia. . Fuel imported through the pipeline is exempt from this agreement to be agreed to by Hungary. The ban will be gradually lifted over the course of several months. By the end of this year, with Germany and Poland halting pipeline oil purchases, the embargo will cover 90% of previous Russian oil imports, EU officials said.

The deal pushed oil prices higher as traders braced for the loss of Russian oil supplies to international markets. Brent, the global benchmark, rose 0.6 percent to $118.39 a barrel on Tuesday, close to a two-month high. Where prices go from here depends on whether Russia can redirect its oil to Asian buyers, analysts say.

Duna Refinery in Hungary. The country is more dependent on Russian oil than most other European Union members.


Janos Kummer / Getty Images

Oil and gas sales accounted for nearly 42 percent of Russia’s federal revenue in the first quarter of the year. According to Brussels-based consultancy Bruegel, the EU pays around $10 billion a month to Russia – payments that will largely disappear once the embargo goes into effect.

“Even this partial ban would deal a huge blow to the Russian budget,” said Maria Shagina, a research fellow at the International Institute for Strategic Studies. “Moscow may reroute some of its oil shipments to Asia, but it’s hard to find a way to offset the entire European market.”

“Russia’s government budget will never be the same,” she said.

Traders and shipowners say the insurance ban — which will be in place for six months to allay the concerns of shipping nations including Greece and Cyprus — is the heaviest of the two sanctions. this measure. Few companies are willing to ship oil on uninsured tankers. Such a ban has blocked Iran’s oil exports as part of an effort to force Tehran to negotiate over its nuclear program a decade ago.

Shipowners and traders have two main types of insurance to protect against possible losses from oil spills and other hazards. One type is hull and machinery insurance, which, for physical damage to ships, is usually purchased at Lloyd’s of London market.

The other is protection and indemnification, including third-party liability. The International P&I Club Group, with member clubs in Norway, the UK, the EU and elsewhere, provides this coverage for approximately 95% of the global tanker fleet by tonnage. The group’s officials have said they will stop providing insurance to Russian tankers if the EU bans it.

The International P&I Club Team could not be reached for comment on Tuesday. Mike Salthouse, global director of Northern England’s Compensation and Protection Association, one of its member clubs, said he could not comment as he had not yet seen the proposed sanctions.

Moscow has spent decades, since the time of the Cold War, building the infrastructure and commercial relationships that have allowed Rosneft Oil Co to be state-affiliated..

and other manufacturers to sell fuel to Europe.

The insurance ban, by making it harder for Russia to sell oil to Asia, makes it more likely that oil prices will stay high or go higher.

The EU ban adds to the challenges facing Russia’s oil industry, which has seen major traders drop out and push its top oil blend for sale at a discount of $35 a barrel compared with the previous one. at global prices.


The EU announcement pushed oil prices higher on Tuesday as traders braced for the loss of Russian oil supplies to international markets. Prices are in euros per liter.


Sean Gallup / Getty Images

Beyond insurance, traders have struggled to secure bank and tanker capital to transport oil to refineries in China and India. Falling domestic and foreign demand has prompted Russian refineries, as well as some crude oil wells, to cut output.

India has bought record amounts of Russian crude in recent weeks but analysts say that will not be enough to recover the barrels the EU is aiming to ban. “In time, Russia’s stockpiles will fill up and manufacturing activity will begin to slow down,” wrote strategists at RBC Capital Markets in a note to clients.

Russian officials have forecast that oil production this year could fall by as much as 17% because of Western sanctions. This presents a long-term problem for Russia as much of its oil infrastructure is not geared towards rapid and sweeping production cuts. The cold Siberian climate means pipelines can burst without oil in them, and the low-yielding Soviet-era fields are expensive to maintain and restart. Analysts say much of the output that Russia shuts down now will be lost forever.

Ending a decade-long dependence on Russian oil poses a stark challenge for Europe, forcing it to find new sources. It could increase global inflation and exacerbate fuel shortages in poorer regions that will compete with Europe for oil imports. The eurozone annual inflation rate rose to a new high in May, reaching 8.1 percent, the EU said on Tuesday.

In 2020, 29% of EU crude oil imports come from Russia, of which the US, the second largest supplier, provides 9%. According to the International Energy Agency, Russia is also a major exporter of refined fuels to Europe, providing 10% of the region’s diesel needs by 2021.

The sanctions exempt oil from reaching Europe via pipeline, but that won’t provide much respite for Moscow. Before the war, the EU imported about 2.5 million barrels of Russian crude oil per day, of which 800,000 were via the Druzhba pipeline, the world’s longest pipeline network with a length of 5,500 kilometers.

According to Amrita Sen, founder of consulting firm Energy Aspects, by the end of the year, Russian crude oil inflows into the EU will be 500,000 bpd, 20% of pre-war levels.

Europe has diverged from Russian oil in recent months, reducing purchases from Moscow and sourcing crude from West Africa, the US and elsewhere. Germany, which imports Russian oil through the northern branch of the Druzhba pipeline, cut its purchases of Russian oil after the war broke out, reducing its dependence on Moscow from 35% to 12%.

The hunt for new exporters comes at a cost. The rush to stockpile oil from other European producers has sent the price of high-quality crude oil from West Africa to Azerbaijan to levels not seen in years. With China emerging after the Covid-19 shutdown has adjusted oil demand, Europe will face greater competition for those crudes.

“There will be even higher competition for crude oil,” Ms. Sen said.

For Europe, replacing Russian diesel will be even more difficult. The fuel, which makes up a larger share of the car fleet in Europe than it does in the US, will likely come from the US, the Middle East and India, analysts and traders say. Ms. Sen said there would be a global shortage of diesel this winter.

One step the EU has avoided is shifting away from Russian natural gas, which is harder to replace than oil since most comes by pipeline. For the Kremlin, the oil embargo marks a bigger blow, as it affects the profitability of the two fossil fuels more.

On Tuesday, Russia cut off deliveries to Dutch energy company GasTerra after it refused to pay in rubles demanded by Moscow following its invasion of Ukraine. The company, which is 50% owned by the Dutch government, joins Poland, Bulgaria and Finland, whose gas supplies have been suspended by Russia due to a payment mechanism.

Write to Laurence Norman at, Joe Wallace at and Georgi Kantchev at

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