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The European Union’s groundbreaking decision to ban almost all oil from Russia to punish the country for its invasion of Ukraine is a blow to Moscow’s economy, but its effects could be mitigated by rising prices. energy prices and other countries keen to buy some oil, industry experts say.
European Union leaders agreed late Monday to cut Russian oil imports by around 90% over the next six months, a dramatic move that was considered unthinkable 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 even more heavily on Russia have been particularly reluctant to act.
European heads of state hailed the decision as a turning point, but analysts were more circumspect.
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The EU ban applies to all Russian oil delivered by sea. At Hungary’s insistence, it contains a temporary exemption for oil delivered through Russia’s Druzhba pipeline to certain landlocked countries in central Europe.
In addition to retaining some European markets, Russia could sell some of the oil previously tied to Europe to China, India and other customers in Asia, although it will have to offer discounts, Chris said. Weafer, CEO of consulting firm Macro-Advisory.
“Now, at the moment, it’s not financially too painful for Russia because world prices are high. They are much higher than last year,” he said. “So even Russia offering a rebate means that it’s probably selling its oil roughly at what it sold last year as well.”
He noted that “India has been a willing buyer” and that “China has certainly been keen to buy more oil as they are two countries that enjoy deep discounts from world market prices.”
Still, Moscow has traditionally viewed Europe as its main energy market, making Monday’s decision the most significant effort yet to punish Russia for its war in Ukraine.
“The sanctions have a clear objective: to induce Russia to end this war and withdraw its troops and agree with Ukraine on a reasonable and just peace,” German Chancellor Olaf Scholz said.
Ukraine estimated the ban could cost Russia tens of billions of dollars.
“The oil embargo will speed up the countdown to the collapse of the Russian economy and war machine,” Foreign Minister Dmytro Kuleba said.
Simone Tagliapietra, an energy expert and researcher at Brussels think tank Bruegel, called the embargo a “death blow”.
Matteo Villa, an analyst at the ISPI think tank in Milan, said Russia will now take quite a big hit, but warned the move could eventually backfire.
“The risk is that the price of oil in general goes up because of European sanctions. And if the price goes up a lot, the risk is that Russia starts to earn more, and Europe loses the bet,” he said. said.
Like previous rounds of sanctions, the oil ban is unlikely to persuade the Kremlin to end the war.
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Moscow seized on the new sanctions in an attempt to rally public support against the West, portraying it as determined to destroy Russia.
Dmitry Medvedev, deputy head of Russia’s Security Council who served as the country’s president, said the oil ban was aimed at reducing the country’s export earnings and forcing the government to cut social benefits.
“They all hate us!” Medvedev said on his messaging app channel. “These decisions stem from hatred against Russia and against all its people.”
Russia did not hesitate to withhold energy to achieve its ends. Russian energy giant Gazprom said it was cutting off natural gas to Dutch trader GasTerra and Danish company Oersted and also halting shipments to Shell Energy Europe bound for Germany. Germany has other suppliers, and GasTerra and Oersted have said they are ready for a shutdown.
Gazprom previously stopped the flow to Bulgaria, Poland and Finland.
Meanwhile, the EU is urging other countries to avoid imposing trade barriers on agricultural products, as Russia’s war increases the risks of a global food crisis.
Ukrainian President Volodymyr Zelenskyy said Russia had blocked the export of 22 million tonnes of Ukrainian grain, much of it destined for people in the Middle East and Africa. He accused Moscow of “deliberately creating this problem”.
Russian oil delivered by sea accounts for two-thirds of EU oil imports from Moscow. In addition to the EU stopping these imports, Germany and Poland have agreed to stop using oil from the northern branch of the Druzhba pipeline.
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Agreeing on sanctions against Russian natural gas is likely to prove much more difficult as it represents a larger percentage of the European energy mix.
“The very loud and clear message that Moscow will hear is that it will be almost impossible for the European Union to get an agreement on blocking the gas, because the gas will not be so easily reproduced from other sources in Europe. than oil,” Weafer said. .