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A guide to the EU’s lukewarm Russian oil embargo
After months of diplomatic wrangling, it seemed this week like the European Union had finally made a big breakthrough in its effort to punish President Vladimir Putin for attacking Ukraine. Oil prices soared, and gas hit new highs after Brussels announced that it had reached an agreement to phase out Russian oil imports by the end of the year.
But the agreement also includes a slate of carve-outs and caveats that could dilute the bloc’s effort to decapitate the Kremlin’s war machine.
What’s in the deal?
The agreement includes a ban on all seaborne Russian oil imports by the end of the year. That covers about two-thirds of the bloc’s total crude imports from Russia – the remaining third comes via pipeline. And since Germany and Poland have pledged to voluntarily ditch oil brought in by pipeline as well, some 90% of Russian imports to Europe would be shut off by the end of the year.
Moreover, it also appears that the EU is set to ban insurance providers from covering tankers carrying Russian oil anywhere in the world. Given that British and other European companies dominate the marine insurance industry, this move will significantly undercut Russia’s ability to offset its losses by selling more oil to Asia.
What’s not in the package?
Part of the reason it’s been so hard to reach a deal is because of opposition from three landlocked EU member states: Hungary, Slovakia, and the Czech Republic. (Slovakia, for instance, gets almost 100% of its oil from Russia.) Hungary's PM Viktor Orbán, who is buddies with Putin, drove the hardest bargain and was most vocal in his refusal to sign onto a Russian oil embargo. He argued that such a move would be economically catastrophic for his country, which depends on Russian pipelines for 65% of its oil. Because the sanctions package requires unanimous approval from EU member states, the holdout would have killed the entire project.
To save face and avoid an embarrassing admission that it couldn’t strike a deal, Brussels capitulated to Budapest’s demands this week, saying that it will continue to allow imports via pipelines and will work out the precise end date for that exemption later.
Despite the obvious disconnect, both Brussels and Budapest are claiming victory. The EU has touted the deal as a triumph for European unity and the maximum pressure campaign against Moscow. Orbán, on the other hand, wrote on Facebook that “an agreement was reached. Hungary is exempt from the oil embargo!” This carve-out only accounts for 10% of Russian exports to the EU. Still, it means that Moscow will be able to continue shipping at least some exports to Europe.
Deferring thorny decision-making never works out well for the sprawling EU. “Agreeing on ending the exclusion of Russian oil delivered via pipelines will not be easy,” says Emre Peker, a Europe Director at Eurasia Group.
“It could take a few months, and even when a deal is done the extended phase-outs as proposed are likely to survive,” he says. So, can the EU still inflict significant pain on Russia if pipelines remain online? Peker says that will only be possible if “Brussels can forge consensus on curtailing Russia’s ability to export crude elsewhere” around the world.
Will Russia feel the pain?
The ban will undoubtedly hurt Russia. Losing two of its biggest crude importers – Germany and the Netherlands – is a big loss. Still, Asia continues to guzzle Russian oil, with China, the largest single purchaser, accounting for almost a third of all Russian crude exports, and South Korea accounting for roughly 7%. What’s more, Europe had already paid Russia 21 billion euros ($22.3 billion) for oil in the first few months since Putin invaded Ukraine. That’s a lot of money for Moscow’s ongoing war machine.
And even when things get rough, Russia can still sell oil for a discount. Notably, two mammoth economies – China and India – have opted not to join the West’s sanctions campaign against Russia. India, for its part, received more than 24 million barrels of Russian oil last month, up from about 3 million in March. China is also trying to make the most of a crude bargain.
What’s at stake for the West?
Indeed, while the insurer ban will make it much harder for Russia to sell its oil, it will also likely keep prices higher, revealing the extent to which Western states are willing to inflict pain on their own constituencies – even as inflation reaches record highs throughout the Eurozone – to punish Russia.
In adopting a hardline anti-Russia stance, EU member states also risk backlash at home where not everyone is on board with the plan: 62% of Slovaks, for instance, oppose ditching Russian oil. As energy prices continue to rise – and a deepening cost of living crisis sweeps the continent – European governments could be risking the revival of a fiery populist wave.
This comes to you from the Signal newsletter team of GZERO Media. Subscribe for your free daily Signal today.
Unpacking Lithuania's energy independence strategy
Over the past two years, Lithuania's economy was hit hard first by COVID, then by the Belarusian migrant crisis, and finally high energy prices late last year.
But now it's proving more resilient than others to the effects of the Russian invasion of Ukraine. Why? Mostly because they prepared for it, Lithuania's Finance Minister Gintarė Skaistė tells Eurasia Group's Shari Friedman in a GlobalStage conversation.
Indeed, the Baltic nation recently grabbed headlines when it became the first EU member state to stop buying Russian oil and natural gas.
But the Lithuanians started the process seven years ago, soon after Russia annexed Crimea.
How did Lithuania do it? Skaistė explains they put a lot of effort into achieving energy independence from Russia, for instance by investing in LNG terminals and connecting to the Nordic countries and Poland.
"Today we have the fruits of … of this prudent policy in the energy sector."
What's more, Skaistė says Lithuania's energy strategy has facilitated the country's transition to renewables and helped lower overall energy consumption.
Watch more of this Global Stage event: Live from Washington, DC: Financing the Future
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US ban on Russian oil imports not coordinated with NATO allies
What are the ramifications of the US ban on Russian oil imports? Are there any surprises on Russia's released list of unfriendly countries? Also, is President Xi facing a hard wartime choice for China? Ian Bremmer shares his insights on global politics this week on World In :60.
First of all, what are the ramifications of the US ban on Russian oil imports?
A couple of things. First of all, the United States doesn't really get much oil at all from Russia. Oil product is a different story. Interesting to see where exactly that lands but it's definitely a significant message from the United States. Last week, the Americans weren't planning on that but given a lot of domestic pressure, including from Congress, the Biden administration decided to move on it. One problem I see is that this was not well coordinated with the Europeans, almost every other message so far in response to the Russian invasion of Ukraine has been incredibly strong coordination between the Americans and the NATO allies. That is not the case here. And I think that is a challenge. The Europeans are not going to be willing or able to go nearly as far as the Americans because they have a hell of a lot more to lose and that potentially makes the NATO alliance look a little bit weaker on this issue. They're going to need to communicate well on it.
Are there any surprises on Russia's released list of unfriendly countries?
Well, surprise is just how many of them there are, frankly. I mean this is dozens of countries that are involved in sanctions, involved in providing military support for Ukraine and the Russians consider all those unfriendly, of course, Ukraine on the list too. I mean a little surprised to see countries like Monaco and Switzerland on that list because historically neutral and the Russians do an awful lot of business there. I will say that I think a lot more needs to be done in terms of the oligarchs, about half of their wealth is held outside of Russia. And it's not just the UK. It's also places like Cyprus. We've seen very, very little movement to actually squeeze and freeze a lot of those assets. They could be doing a lot more. It's an area that I'm going to be watching closely over the coming days.
Also, is President Xi facing a hard wartime choice for China?
Not in his view. In his view, I mean he's got Chinese media that are actually embedded with Russian soldiers fighting on the ground in Ukraine, strict censorship regime, nothing pro-Ukrainian, nothing anti-Russian in terms of the war on the ground in China. The Chinese strategically are aligned very much with the Russians here and not with the United States and the West. Now they want to portray themselves as being more neutral, being more constructive. You can still do business with the Chinese but the reality is, and they still, they very much would like to see a negotiated settlement to this conflict. They don't want a second Cold War, but to the extent that the fighting is continuing, it's very clear which side of the battle that they are actually on. And this is a problem ongoing for the Americans and the Europeans. Very interesting to see Xi Jinping talk to both Macron and Scholz in the past hours to say, "Hey, we'd like to be involved in any diplomatic settlement." I'm certain that would've been prepped with Putin in advance of Xi Jinping making that announcement.