Brussels (AFP) – The European Union’s ground-breaking decision to ban nearly all oil from Russia to punish the country for its invasion of Ukraine is a blow to Moscow’s economy, but its effects may be mitigated by rising energy prices and other countries willing to buy some of the oil, industry experts say.
European Union leaders Agreed late on Monday To cut Russian oil imports by about 90% over the next six months, a dramatic move that would have been unimaginable just months ago.
The 27-nation bloc depends on Russia for 25% of its oil and 40% of its natural gas, and European countries that rely more on Russia have been particularly reluctant to act.
European heads of state hailed the decision as a turning point, but analysts were more cautious.
The EU ban applies to all Russian oil delivered by sea. At Hungary’s insistence, it contains a temporary exemption for oil delivered via Russia’s Druzhba pipeline to some landlocked countries in Central Europe.
Macro-Advisory CEO Chris Weaver said that in addition to holding some European markets, Russia could sell some oil previously destined for Europe to China, India and other customers in Asia, although it would have to offer discounts.
“Now, right now, it’s not painful financially for Russia because global prices are high. They are much higher than last year, he said. “So, even Russia is offering discounts which means it probably sells its oil almost for what it sold last year as well.”
He noted that “India was a willing buyer” and that “China was definitely keen to buy more oil because both countries are getting huge discounts on global market prices.”
However, Moscow is used to seeing Europe as its main energy market, making Monday’s decision the most significant effort yet to punish Russia for its war in Ukraine.
“Sanctions have one clear goal: to push Russia to end this war, withdraw its forces and agree with Ukraine on a reasonable and just peace,” German Chancellor Olaf Scholz said.
Ukraine has estimated that the embargo could cost Russia tens of billions of dollars.
“The oil embargo will accelerate the countdown to the collapse of the Russian economy and the war machine,” Foreign Minister Dmytro Kuleba said.
Ukrainian President Volodymyr Zelensky said in a video address that Ukraine will push for more sanctions, adding that “there should be no important economic links between the free world and a terrorist state.”
Simon Tagliabitra, an energy expert and research fellow at Brussels-based think tank Bruegel, described the ban as a “huge blow”.
Russia will take a big hit now, said Matteo Villa, an analyst at the ISPI think-tank in Milan, but cautioned that the move could ultimately backfire.
The risk is that the price of oil is generally rising due to European sanctions. And if the price goes up too much, the risk is that Russia will start earning more, and Europe will lose the bet.
Like previous rounds of sanctions, the oil embargo is unlikely to convince the Kremlin to end the war.
Moscow has taken advantage of the new sanctions in an attempt to mobilize popular support against the West, calling it determined to destroy Russia.
Dmitry Medvedev, the deputy head of Russia’s Security Council who served as the country’s president, said the oil embargo is aimed at slashing the country’s export earnings and forcing the government to curtail social benefits.
“They all hate us!” Medvedev said on his messaging app channel. “These decisions stem from hatred of Russia and against all its people.”
Russia did not shy away from blocking energy to get its way. Russian energy giant Gazprom said it would cut off natural gas from Dutch trader Gastera and Denmark’s Ørsted and stop shipments to Shell Energy Europe that were destined for Germany. Germany has other suppliers, and Gastera and Ørsted said they are ready to shut down.
Formerly Gazprom stop flowing to Bulgaria, Poland and Finland.
Meanwhile, the European Union is urging other countries to avoid placing trade barriers on agricultural products as the Russian war increases the risks of a global food crisis.
Zelensky said Russia has blocked the export of 22 million tons of Ukrainian grain, most of which is intended for people across the Middle East and Africa. He accused Moscow of “deliberately creating this problem.”
Russian oil delivered by sea accounts for two-thirds of the EU’s oil imports from Moscow. In addition to cutting off such imports by the European Union, Germany and Poland agreed to stop using oil from the northern branch of the Druzhba pipeline.
Agreement on sanctions against Russian natural gas is likely to be tougher because it represents a greater proportion of Europe’s energy mix.
“The loud and clear message that Moscow will hear is that it will be almost impossible for the EU to get any agreement on a gas ban because gas will not be easily duplicated from other sources in Europe such as oil,” Weaver said. .
Associated Press reporters Juras Karmanau in Lviv, Ukraine, Mike Corder in The Hague, Netherlands, Colin Barry in Milan, Italy, and Derek Gatopoulos in Athens contributed to this report.
Follow the Associated Press’ coverage of the war on https://apnews.com/hub/russia-ukraine