Ursula von der Leyen, the president of the European Commission, has today unveiled a proposal to impose an EU-wide ban on Russian oil imports, one of Moscow’s main sources of revenue.
The embargo will be structured and gradual, giving member states up to six months to phase out purchases of Russian crude and until the end of the year to stop buying all sorts of refined oil products.
The ban will apply to all Russian oil traded both via ports and pipelines.
“Let us be clear: it will not be easy. Some member states are strongly dependent on Russian oil. But we simply have to work on it,” said von der Leyen while speaking before the European Parliament on Wednesday morning.
“We maximise pressure on Russia, while at the same time minimising collateral damage to us and our partners around the globe. Because to help Ukraine, our own economy has to remain strong.”
Part of the sixth package of EU sanctions, the oil embargo represents the most impactful penalty the bloc has imposed on Russia since the start of the Ukraine war on 24 February and has the potential to deprive the Kremlin of one of its most reliable sources of income.
The radical measure threatens to further destabilise the whole European economy, which has already entered a period of deceleration and record-breaking inflation as a result of the conflict.
The European Union is Russia’s top oil client, buying around 3.5 million barrels of crude and refined products on a daily basis. Last year, the bloc spent more than €73 billion on Russian oil, the greatest expenditure on fossil fuels by a large margin.
Von der Leyen’s announcement follows days of intense behind-the-scenes diplomacy between the executive and representatives of member states, some of whom remain uneasy about the backlash the measure is expected to trigger against the European economy.
Given how inter-linked oil markets are around the world, the move from Brussels could easily have spill-over effects beyond the continent, hitting middle- and low-income countries along the way.
The embargo will be further discussed by ambassadors over the coming days and will enter into force only after its unanimous approval and publication in the EU’s official journal.
Germany has been a key factor behind the decision-making process: the country recently lifted its opposition after managing to slash its dependency on Russian oil from 35% before the war to 12% in May.
“After two months of work, I can say Germany is not against an oil ban on Russia. Of course, it is a heavy load to bear, but we are ready,” Robert Habeck, Germany’s vice-chancellor and economy minister, told reporters on Monday.
“We have to prepare the hubs, we have to prepare the pipelines,” he said. “So, time is helpful, but other countries have bigger problems.”
Germany is one of the countries linked to the Druzhba pipeline, a massive conduit operated by Russia’s state-controlled giant Transneft, that also connects Poland, Hungary, Slovakia, the Czech Republic and Austria.
Hungary and Slovakia are among those who raised concerns about the oil ban’s negative consequences for their national economies, according to diplomatic sources consulted by Euronews, while Italy, Greece and Austria stressed the need to have sufficient time to adapt their energy supply chains.
On the other side of the table, Poland insisted on slapping a full embargo on both oil and gas imports, a dual scenario that would in all likelihood trigger a deep recession across the continent.
“We are depriving the Russian economy of its ability to diversify and modernise. Putin wanted to wipe Ukraine from the map. He will clearly not succeed,” von der Leyen said.
“On the contrary: Ukraine has risen up in unity. And it is his own country, Russia, he is sinking.”
All eyes on suppliers
The protracted timeline envisioned by the Commission — almost eight months before the total ban takes place — is designed to allow member states to find new suppliers. The previous sanction against Russian fossil fuels, the coal ban, introduced a deadline of just four months.
All eyes turn now to other oil-producing countries, including Iraq, Nigeria, Saudi Arabia, Kazakhstan, Norway, the US and the UK, who will be expected to fill the huge gap left by Russia.
The Organization of the Petroleum Exporting Countries (OPEC), which works in conjunction with Moscow, has previously warned an embargo on Russian oil would create a market disruption comparable to the 1970s energy crisis, which prompted a long, painful period of stagflation in the West.
“We could potentially see the loss of more than seven million barrels per day of Russian oil and other liquids exports,” OPEC Secretary-General Mohammad Barkindo said during a meeting last month with EU officials. “Considering the current demand outlook, it would be nearly impossible to replace a loss in volumes of this magnitude.”
A similar but less stark warning was issued by Janet Yellen, the US Treasury Secretary, who said “we need to be careful when we think about a complete European ban” on Russian oil.
Yellen said the measure might trigger a spike in international prices that, in a counterproductive way, would bring more money into Moscow’s coffers and help cushion the impact from Western sanctions.
A group of experts at Bruegel, a Brussels-based economics think tank, argued in a recent paper that the sudden removal of so many oil barrels from the market will constitute a “serious global supply shock.”
“With already tight oil markets, it is not clear that suppliers would be able or willing to make up the shortfall,” the experts wrote, casting doubt over OPEC’s willingness to help Europe weather the storm.
The EU appears to be willing to bear the brunt of its decision, mindful of how the continued purchase of Russian fossil fuels is denting the impact of the previous rafts of sanctions.
Although the bloc has targeted almost all imaginable sectors of the Russian economy, from the Central Bank to microchips and vodka, the aggression shows no signs of abating.
Ukraine has for weeks been calling on the 27 to boycott Russian oil, arguing the taxes the government receives from the exports are financing the military campaign.
“Oil is so important for us because of its direct impact on the Russian ability to continue and increase aggression against Ukraine,” Taras Kachka, Ukraine’s trade representative, told Euronews last month.
“[An oil embargo] means that there will be a limited capacity to pay salaries to the Russian soldiers. It will be impossible to produce weapons by Russian factories, logistics, etc,” he added.
Besides the oil embargo, President von der Leyen also proposed to remove Sberbank, Russia’s largest bank, and two other “major banks” from SWIFT, the Belgium-based system that allows financial transactions around the world, and to ban three additional Russian state-owned broadcasters.
The Commission president, who in early April travelled to Kyiv and visited the scene of the Bucha massacres, said the sixth package of sanctions will impose travel bans and asset freezes on those involved in the alleged war crimes and the “inhuman siege” of the port city of Mariupol.
“This sends another important signal to all perpetrators of the Kremlin’s war: We know who you are, and you will be held accountable,” von der Leyen said.