EU Spares Pipeline Oil From Russian Embargo Plan to Break Logjam

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(Bloomberg) — The European Union proposed banning seaborne oil from Russia while delaying restrictions on imports from a key pipeline in an effort to satisfy Hungarian objections and clinch an agreement on a stalled sanctions package that would target Moscow for its war in Ukraine. 

The European Commission, the EU’s executive arm, sent a revised proposal to national governments on Saturday that would spare shipments of oil through the giant Druzhba pipeline, which is Hungary’s main source of crude imports, according to people familiar with the matter. 

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Member states would phase out their imports of seaborne crude in six months and refined petroleum products in eight months, said the people, who asked not to be identified because the discussions are private. 

The proposal would give more time to Hungary, which has opposed the deal, to find a technical solution that satisfies its energy needs. It would also address the concerns of other landlocked countries, including Slovakia and the Czech Republic.

Under the revised draft, Bulgaria would get a transition period until June or December 2024 and Croatia could get an exemption for imports of vacuum gas oil. The commission also proposed restricting re-exports of Russian oil supplied by pipeline to other member states or third countries.

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The commission also appears to have limited the scope of a provision that would affect services linked to the shipment of oil to third countries. The draft currently prohibits providing technical assistance, brokering services or financing or financial assistance in six months following its adoption. The previous proposal also included “any other services,” which was understood as a reference to providing insurance for shipments. 

EU ambassadors are scheduled to meet on Sunday when they could discuss the revised package. Some member states are pushing to have an agreement before EU leaders meet in Brussels on Monday to discuss the war in Ukraine. 

The sanctions package requires the backing of all member states. Several nations had previously opposed distinguishing between seaborne and pipeline deliveries over concerns that such a split was unfair as it would disproportionately hit their supplies.

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Sanctions Impact

The EU had previously proposed phasing out all Russian oil imports by early next year. Hungary and Slovakia would have been given until the end of 2024 to comply, while the Czech Republic would have been granted an exemption until June 2024. The countries are heavily reliant on Russian oil, but they account for a relatively small portion of the EU’s overall imports from Moscow.

Exempting pipeline oil from the measures — which Hungary had previously asked as a condition to back the package, along with more time and infrastructure investments — will dent the impact of the sanctions. Russia shipped about 720,000 barrels a day of crude to European refineries through its main pipeline to the region last year. That compares with seaborne volumes of 1.57 million barrels a day from its Baltic, Black Sea and Arctic ports.

However, the bulk of the pipeline deliveries are to Germany and Poland, which have signaled they will wean themselves off Russian supplies regardless of any EU action.

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