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Why is the EU struggling to agree Russian oil sanctions? -Breaking

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© Reuters. FILE PHOTO – The Druzhba pipeline connecting Russia and Hungary is shown at the Hungarian MOL Group Danube Refinery, Szazhalombatta (Hungary), May 18, 2022. REUTERS/Bernadett Szabo/File Photo

By Kate Abnett

BRUSSELS, (Reuters) – Nearly four weeks after Russia invaded Ukraine, oil sanctions are being negotiated by the European Union. It is so hard.

THE SANCTIONS PLAN

EU diplomats attempt to strike a deal in advance of the EU Leaders Summit, which begins Monday afternoon.

They will begin their discussions by looking at the proposal of the European Commission from May 4, for the sixth most stringent round EU sanctions against Russia. Proposed sanctions included an import ban for all Russian oil (sea-borne, pipeline and refined)

Moscow would lose a large revenue stream to finance its military operations in Ukraine if it were to impose an oil embargo. Since February 24, Russia has spent nearly 30 billion euros (32.3 billion dollars) on oil. This was when Moscow launched what Moscow refers to as a “special army operation”. According CREA research organization,

Russia’s biggest market for oil exports is Europe. According to the International Energy Agency, half of Russia’s crude oil exports of 4.7 million barrels per hour go to Europe. In 2020, the EU was dependent on Russia to import 26% of its oil and 40% of its gas.

The EU’s dependence on Russian oil is different between countries. This means that they have different options for replacing Russian supply with other sources. Therefore, it is difficult for the EU to come up with an acceptable oil sanctions package.

WHY THE REFUSAL?

Sanctions must be agreed upon by all 27 EU member states. Hungary is the principal opponent. According to it, stopping Russian oil imports will cause havoc in its country-locked economy that cannot get oil elsewhere.

Similar concerns were expressed by the Czech Republic and Slovakia, both landlocked countries. Similar to Hungary, the oil they receive from Russia is transported via the Druzhba southern pipeline.

Three countries were offered longer periods to reduce Russia’s oil. The EU also announced this month that 2 billion euros would be provided for funding oil infrastructure.

Hungary is not yet convinced. The country claims that it has to obtain financing for an upgrade of the oil pipeline to Croatia from which oil will be transported. The EU action taken against Budapest in relation to alleged violations of EU democratic principles means that Hungary cannot obtain the funding requested by Brussels.

The IEA reports that Hungary, whose Prime Minister Viktor Orban is closer to Russia than other members of the bloc, received more than half of last year’s crude oil and products imports from Russia.

COMPETITION CONCERNS

Brussels, having already imposed five rounds sanctions on Moscow’s economy, is now trying to prevent a public debate over the oil sanctions which could undermine EU countries’ so-far unison against Russia.

In an effort to reach a settlement, the countries discussed Monday a compromise. This would ban Russian oil being brought into the EU via tankers and allow for temporary exceptions for pipe deliveries.

It would also allow Russia to exempt its North Druzhba Pipeline, which supplies Poland as well as Germany from the embargo.

However, some EU diplomats warned against this and recommended that the Carve-Out for the Northern Arm of the Pipeline be abandoned. Germany had previously stated it was ready to support an oil embargo at the end of 2012. Poland, on the other hand, has supported the cutting of Russian oil.

It is difficult to come up with a solution that doesn’t unfairly punish some countries. Exempting certain pipelines could cause competition issues in the EU. This is because countries that are linked to pipelines would receive cheaper Russian oil and other states would have to change to something more costly.

The Bruegel think tank says that three quarters of Europe’s Russian oil are delivered by tankers and a quarter by pipeline. Therefore, an embargo against seaborne delivery would have a significant impact.

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