Why Is the E.U. Struggling to Agree with Oil Sanctions?

Nearly four weeks after the European Commission suggested oil sanctions against Russia for its invasion of Ukraine, European Union countries are still unable to reach an agreement. Diplomats from the E.U. hope to get a deal ahead of the two-day E.U. leaders summit, which begins Monday afternoon.

The European Commission’s proposal for the sixth and strongest round of E.U. sanctions against Russia, released on May 4, served as the starting point for their discussions. The proposal proposed a ban on all Russian oil imports, including crude oil and refined products, both seaborne and pipeline.

Since Feb. 24, when Russia initiated what Moscow calls a “special military operation,” E.U. members have paid Russia roughly 30 billion euros ($32.3 billion) for oil.

Russia’s primary market for oil exports is Europe. According to the International Energy Agency, half of Russia’s 4.7 million barrels per day of oil exports go to the E.U. In 2020, Russia was responsible for 26% of E.U. oil imports and roughly 40% of E.U. gas imports.

All 27 E.U. member countries must agree upon sanctions. The main adversary has been Hungary. It claims that suspending Russian oil shipments would devastate its landlocked economy; it would be unable to obtain energy from other sources.

Landlocked Slovakia and the Czech Republic have expressed similar reservations. They, like Hungary, rely on Russia’s southern Druzhba pipeline for oil supplies.

The E.U. said that it would provide 2 billion euros in funding for oil infrastructure to assist them.

Brussels is scrambling to prevent a public split on oil sanctions; it would shatter the E.U. countries’ so far united front against Russia after imposing five rounds of penalties on Moscow.

How the Ukraine Conflict Is Reshaping Global Oil Markets

Russia’s invasion of Ukraine has reshaped the global oil market, with African sources stepping in to supply European demand and Moscow increasingly relying on risky ship-to-ship transfers to deliver its petroleum to Asia, despite Western sanctions.

The reroutings are the most significant supply-side reshuffle in the global oil trade since the U.S. shale revolution changed the market’s shape a decade ago. They show Russia will be able to negotiate an E.U. Oil boycott as long as Asia and China continue to buy Russian petroleum.

According to industry data and traders, sanctions imposed on Moscow after the conflict in Ukraine began in February, including a U.S. ban on its oil imports, have caused Russia to shift its focus away from Europe, where its crude is shunned.

According to the Paris-based International Energy Agency figures, Russian shipments were back to pre-invasion levels in April. Oil prices have stabilized around $110 after reaching a 14-year high of $139 a barrel in March.

Even if the E.U. agrees to an oil embargo in its next wave of Russian penalties, analysts say demand from Asia will mitigate the impact.

Russian-owned or flagged ships can’t call at ports because of a patchwork of sanctions imposed by the United States, the European Union, and the United Kingdom.

European refiners have turned to West African crude imports to compensate for the loss of Russian oil; up 17 per cent in April compared to the 2018-2021 average.

The U.S. has also increased its supplies to Europe. On a delivered basis, European crude imports from the United States increased by almost 15% in May compared to March; this was the most significant monthly rate in the company’s history. The European Union has received approximately 1.45 million barrels per day (BPD) of petroleum from the United States.