Since the beginning of the conflict in Ukraine, Brussels has been putting pressure on Moscow by introducing sanctions to damage its economy. The aim is clear: to deprive Russia of its main sources of hard currency income. But the European Union is having trouble agreeing on its sixth sanction package. Initially, the EU had planned to ban the import and transport of crude oil from Russia. Due to a lack of consensus among Member States, this plan could now be watered down.
Oil is essential for all economies to create wealth. When the price of oil rises sharply, countries without oil pay the equivalent of a tax or levy to countries that produce it. A massive change in the price of oil leads to a massive transfer of wealth in a global economy.
This is the difficult situation that President of the European Commission, Ursula von der Leyen, is currently facing. By seeking to stop importing oil from the world’s largest producer, the European Union risks above all paying more for its much-needed energy.
Will this policy inflict more pain on Russia than on the old continent? Nothing is less certain. What is certain is that this measure is not unanimously supported by the EU Member States.
Hungary, which has until now largely supported EU sanctions against Russia, is the main opponent of the suspension of Russian oil imports. Prime Minister Viktor Orban has said that stopping Russian oil purchases would be an “atomic bomb” for the Hungarian economy. “Fuel prices in Hungary will rise by 55-60%. Their growth will be followed by a surge in prices for all goods”, said the Hungarian Minister of Foreign Affairs.
Given their dependence on Russian crude oil, Slovakia and the Czech Republic would also want to benefit from special conditions if an agreement can be reached on new energy sanctions.
According to Bloomberg, the EU is considering banning the transport of Russian oil to third countries by EU-owned ships. This time, it is Greece that is lobbying to drop this provision in the next round of sanctions. Its economy is heavily dependent on maritime transport.
Greeks own more than a quarter of the world’s oil tankers by capacity. The share of Greek tankers shipping oil from Russian ports has risen from 37% before the war to 55% since.
EU member states could, however, agree to sanction Russian oil exports through European insurers. To transport oil using tankers, oil companies collectively insure their ships against risks, including oil spills.
Targeting marine insurance is a powerful tool as the largest specialist insurers in this sector operate mainly in Western countries. This option still needs the UK to be persuaded to adhere to EU sanctions as it plays a crucial role in the insurance market.
“I can assure you that Europe will move out from Russian oil and Europe will move out from Russian gas. The only thing is it cannot be done overnight,” said Alexander Schallenberg, the Austrian Minister of Foreign Affairs.
The paradox is that by promising to phase out Russian oil imports, the EU is helping to create uncertainty about future supplies. This in turn drives up the price of oil today and helps to increase Russian state revenues.