E.U. agrees to phase out Russian oil but exempts pipeline deliveries

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BRUSSELS — European Union countries finally reached a deal to wean off Russian oil, their most significant effort yet to hit the Russian economy over the war in Ukraine, though the impact will be softened by an exemption for pipeline oil, a concession to landlocked holdouts, most notably Hungary.

After weeks of negotiations, the 27 countries agreed on Monday to end seaborne deliveries of Russian oil. The pipeline deliveries will still flow. According to the E.U., several countries may also be granted extensions or exemptions. Officials and diplomats.

European Council President Charles Michel said the agreement would cover more than two-thirds of Russian oil imports, cutting off a “a huge source of financing for its war machine.” Officials and diplomats will still have to agree on technical details in the coming days and the sanctions must be formally adopted by all 27 nations. E.U. Leaders of the E.U. meet Tuesday again to talk about Russian invasion.

Hungarian Prime Minister Victor Orban, a perennial E.U. spoiler and one of Russian President Vladimir Putin’s closest allies in Europe, had obstructed a deal, insisting on more time and money to upgrade his country’s oil infrastructure. Orban said a faster phaseout would be like dropping “a nuclear bomb on the Hungarian economy.”

While there was sympathy for Hungary’s position, some diplomats said Orban used the situation to hit back after the European Union withheld economic recovery money, and threatened to hold back billions of euros in subsidies, for democratic backsliding in the country.

Although the compromise falls short of the full and immediate ban that Poland and the Baltic states demanded, and does not address Russian gas, it still marks a turnaround for the European Union, which imported 35 percent of its oil from Russia in 2020 and in March told the United States it was too dependent on Russian energy to join an embargo.

The oil phaseout is part of the sixth round of E.U. According to the proposal, sanctions against Russia include a package which will eliminate the biggest Russian bank, Sberbank and other banks from SWIFT for international transactions. It also bans three Russian-owned broadcasters out of the European Union.

Commission President Ursula von der Leyen said the bloc will also take aim at top military officers and others linked to possible war crimes in Ukraine. When the agreement is finalized, a complete list of those and entities that will be targeted will also be made public.

At the summit Monday, E.U. leaders listened to a virtual address from Ukrainian President Volodymyr Zelensky, who pushed leaders on oil and appealed to European unity.

E.U. Leaders also discussed ways to help the Ukrainian economy after and now. Michel stated that the bloc intends to increase Ukrainian liquidity and assist with its reconstruction. The bloc is considering a nearly $10 billion plan to provide financial assistance in the short term and exploring ways to fund rebuilding.

Since Russia invaded Ukraine, the European Union has worked with the United States and other allies to weaken the Russian economy, hitting Moscow with a number of sanctions packages but at the same time continuing to buy Russian fossil fuels.

After photographs and footage of atrocities in the Ukrainian town of Bucha started circulating in April, E.U. officials announced a plan to phase out Russian coal. They promised that oil would follow.

The original oil proposal from the European Commission in early May called for countries to phase out imports over six months and refined petroleum products by the end of the year. Diplomats claim that it granted extensions to Hungary and Slovakia, which are heavily dependent upon Russian pipeline oil.

In the weeks since, additional countries pushed for extensions. Additional countries have pushed for extensions in the weeks since Orban’s victory in Hungary’s landslide elections.

The exemption for pipeline oil allows continued supplies through the Druzhba network, which runs through Belarus to Poland and onto Germany, and through Ukraine to Slovakia, the Czech Republic and Hungary.

E.U. Officials claim that pipeline oil is responsible for about a third the total imports. Russia’s oil imports will fall if Poland and Germany keep their promises to eliminate Russian oil from the country by year end. Von der Leyen wrote online that the new deal “will effectively cut around 90 percent of oil imports from Russia” to the European Union by the end of the year.

Because of rising prices, Moscow has continued to earn about the same amount of money from fossil fuel sales as it did before the invasion, according to estimates by the Wednesday Group, a team of experts tracking Russian energy sales. The group estimated that this adds up roughly $1 billion per day to its revenue.

The E.U. Moscow’s decision to abandon an immediate oil ban will allow it to search for alternative buyers. Asia is the best market. Russia will have to work hard to find enough buyers to take over the E.U. market. Reorganizing Russia’s energy export network will also take money and time.

Edward Gardner, a commodities economist at Capital Economics in London, said he expects Russian exports to fall about 20 percent this year. Gardner stated that the European Union should manage “relatively well” in finding suppliers for Russia, though oil prices will remain high throughout Europe.

“The global impact of less Russian oil getting on to the market should be continued high prices,” he said. Analysts said that even if Russia does not sell its oil at deep discounts, the high prices would offset any losses.

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