Brussels proposes full ban on Russian oil

Brussels proposes full ban on Russian oil
Oil is among the biggest contributors to Russia's federal budget, with oil exports often taxed at around 60% of their revenue. / Image: bne IntelliNews.
By Theo Normanton May 4, 2022

The EU has unveiled proposals for a sixth package of sanctions which will target Russian energy, banks and media. In a speech to the European Parliament on Wednesday, 4 May, President von der Leyen has proposed banning all Russian oil imports.

The measures put forward by the European Commission will now be debated in the European Parliament, where they need to be unanimously approved by the 27 member states in order to be adopted.

Energy imports have been a bone of contention in EU sanctions packages against Russia, which have otherwise been relatively tough. The EU’s fifth package of sanctions included an agreement to stop importing Russian coal, but oil and gas were conspicuously absent.

The EU’s oil supply is more diversified than its gas supply, but still relies heavily on Russia. In 2019, Europe obtained 27% of its oil from Russia.

By the same token, curbs on oil exports to the EU would be a strong blow to the Russian economy. Before the start of the war, more than half of Russia’s crude oil exports went to the EU.

Because oil exporters are taxed at around 60% of their revenues, oil is a significant contributor to Russia’s federal budget. Oil revenue is thought to be one of the sources of funding for Russia’s current war in Ukraine. Oil exports also contribute strongly to foreign currency inflows. On the other hand, tax income from gas revenues is much lower.

The sanctions and corporate self-sanctioning are already having a discernible impact on Russian oil output, which is currently down 9%, and is expected to fall by as much as 17% by the end of this year, according to Russia’s Economy Ministry. That would make Russia’s 2022 oil production the lowest in 20 years.

But it is not yet clear that all the proposals for the sixth package of sanctions will be adopted. There is still some opposition to an oil import ban coming from Hungary, and at least one Slovakian diplomat also opposes the move. Hungary and Slovakia are the two countries most dependent on Russian oil in the EU.

In an effort to try to get Hungary and Slovakia to support the package, the European Commission has promised to phase out Russian oil “in an orderly fashion… in a way that allows us and our partners to secure alternative supply routes, and at the same time be very careful that we minimise the impact on the global market.”

Von der Leyen said crude oil imports would be phased out over the next six months, while refined oil products would not be fully banned until the end of 2022.

Although von der Leyen did not mention that any countries were exempt from this timeframe, Reuters has cited an EU source saying that Hungary and Slovakia will be allowed to continue their existing contracts to buy Russian crude oil until the end of 2023.

In addition to proposals to phase out Russian oil imports, von der Leyen announced other measures targeting the Russian financial system. She said that the EU would remove Sberbank – Russia’s biggest bank – from international payment system SWIFT.

Additionally, three Russian state-owned broadcasters will be banned from the EU’s airwaves, internet and TV, "because to help Ukraine, our own economy has to remain strong.”

Von der Leyen also promised to publish a list of Russian soldiers who have committed war crimes. “This sends an important signal to all perpetrators of the Kremlin’s war: we know who you are, and you will be held accountable.”

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