The EU’s strictest sanctions so far have been tightened

On Saturday, December 3, it was revealed that all the member states of the European Union, including Hungary, accepted the sanction applicable to the $60 Russian oil price cap. What exactly does this mean in practice? The statement of the European Council on Saturday states that the price of a barrel of crude oil and petroleum oil arriving by sea from Russia can be no more than 60 dollars from today.

According to the Union’s official rationale, the price cap now imposed on Russian oil will, among other things, limit price fluctuations due to extraordinary market conditions, as well as drastically reduce Russia’s revenues from oil trade. Meanwhile, Brussels also expects global energy prices to stabilize somewhat with the introduction of the latest sanctions package.

Only the oil that fits in the pipe comes out

Parallel to the price cap, the ban on the import of Russian crude oil by sea also comes into force from today. This decision was made by the European Council as part of the sixth sanctions package.

The Council, on the other hand, established a temporary exception for crude oil imported via pipeline to EU member states whose geographical location causes a specific dependence on Russian energy supply and which do not have viable alternative options to eliminate this. Based on the plans, the restrictions will cover nearly 90 percent of Russian oil imports to Europe by the end of the year.

So it cannot be emphasized enough that the EU ban on crude oil shipments effective today does not apply to oil coming from Russia via pipeline to Europe.

This means that Hungary, the Czech Republic and Slovakia will continue to receive Russian oil through the Friendship Pipeline. Germany and Poland also receive shipments through the pipeline, but unilaterally agreed to stop imports by the end of the year. Due to its dependence, Bulgaria enjoys a temporary exemption from the Russian maritime oil transport ban until the end of 2024.

Thus, according to the current situation, goods that cannot be imported from Russia into the Union:

  • crude oil (from today) and refined petroleum products (from February 2023) with certain exceptions;
  • coal and other solid fossil fuels;
  • steel, steel products and iron;
  • gold, including jewelry;
  • cement, wood, paper and plastics;
  • seafood and alcoholic beverages (e.g. caviar, vodka);
  • cigarettes and cosmetics.

The strictest EU sanction to date

According to many, including Prime Minister Viktor Orbán, the ban on Russian crude oil effective today is the EU’s strictest sanction against Russia to date. THE Politico according to his analysis, the significance of the EU’s current steps can best be captured by three figures:

  1. Russia is the world’s third largest oil producer after the United States and Saudi Arabia.
  2. After Saudi Arabia, Russia is the second largest crude oil exporter of all time.
  3. In 2021, almost half of Russian oil exports were directed to Europe.

The newspaper also writes that the war has so far not affected Russia’s status as an oil superpower, as well as its revenues from the sale of crude oil. Data from the International Energy Agency show that Moscow’s total oil exports have so far held their own: in October, for example, they were 7.7 million barrels per day. This is only 400,000 barrels below pre-war levels.

This means that Russia has received tens of billions of dollars in fossil fuel revenue since the start of the war alone. And Russian President Vladimir Putin continues to finance Russia’s invasion of Ukraine primarily with money from fossil fuels. Well, the EU sanctions imposed from today can change that.

Moreover, in February 2023, another EU ban will come into force, extending to the import of Russian oil products, including gasoline, diesel and kerosene.

According to Claudio Galimberti, the leading analyst of the energy research company Rystad, the tightening of the eighth sanctions package could be the final chord of the global transformation of oil flows, which does not threaten Europe’s energy supply. The expert adds: changes in global oil prices can be quite modest, so European consumers should not prepare for a drastic increase in gasoline prices for the time being.

For example, the price of Brent crude oil per barrel on Friday was recorded at $87, which is significantly lower than the peak of $110/barrel in June.

“The EU will import crude oil from elsewhere. While Russia will certainly increase its crude oil exports to China and India, which will reduce the demand for oil from the Middle East. And Europe will buy more oil from the Middle East and other sources. So the market conditions are not they are bound to change,” said Simone Tagliapietra of the Bruegel think tank.

This is somewhat contradicted by the fact that oil prices started to rise slightly at the beginning of the week after the price cap was put in place: the price of Brent oil is up 1.76 percent on Monday around noon, trading at $87.12 per barrel. The price of WTI oil rose slightly faster than that, by 2.18 percent, and is approaching the price of $82 per barrel.

Russia is introducing a ban on the ban

Despite the price cap and the ban on crude oil transported by sea, the members of the Organization of the Petroleum Exporting Countries (OPEC) and the large oil producers outside the organization, including Russia, do not change their production policy. While Russia is already working on a mechanism to ban trade subject to a ceiling on oil prices.

Russia will only sell crude oil to countries that cooperate with it under market conditions, Russian Deputy Prime Minister Alexander Novak told Rossiya 24 news television on Sunday. The Russian Deputy Prime Minister responsible for energy affairs stressed that Russia will insist on this even if it has to reduce its production.

In our practice, we are not going to use price cap tools. We are now working on mechanisms to prohibit the use of the price cap tool, regardless of what level is set. We believe that such an intervention could lead to further destabilization, a lack of energy resources and a decrease in investment

Aleksandr Novak protested.

Sanction packages against Russia

Since Russia attacked Ukraine, since February 23, 2022, the European Council has decided on eight sanctions packages, which apply to the entire territory of the Union and all its citizens. The EU sanctions mainly target members of the Russian economic elite, Russian companies, offices, banks, that is, essentially the entire financial sector of President Vladimir Putin’s empire.

With a special focus now on trade and the energy industry in Russia.

The first EU sanctions package, which was adopted immediately on February 23, hit the 351 Russian representatives of the Duma, those who voted for the recognition of the separatist regions of Donetsk and Luhansk as Russian territory, with asset freezes and travel bans. In addition, 27 other influential Russian government members, private individuals, organizations, and military leaders were added to the Brussels sanctions list.

The Russian Central Bank also received the EU exit at that time, and two days later, as part of the new EU sanctions package, the assets of President Putin and Foreign Minister Sergey Lavrov within the EU were also frozen. At the same time, visa facilitation rules for Russian businessmen, diplomats and other officials were withdrawn. For which an export ban was introduced:

  • for semiconductors, i.e. chips, which are indispensable elements of the Russian military industry;
  • for products used in oil refining;
  • for technologies used in aviation and the space industry.

The third package of sanctions, which arrived at the very beginning of March, targeted another 26 Russian individuals and organizations, in addition to suspending the European broadcasting services of Russia Today and the Russian state media called Sputnik. It was also at that time that a flight ban was ordered for planes of Russian airlines and Russian-owned private planes.

The third sanctions package did not skimp on financial restrictions either, for example:

  • blocked all transactions with the Central Bank of Russia;
  • also banned seven Russian banks from the SWIFT system;
  • also ordered a ban on investing in the Russian Direct Investment Fund;

With the fourth package that arrived on March 15, the Union welcomed new oligarchs to the ever-growing number of sanctioned Russians. At that time, what also happened: the restriction of trade in luxury goods, iron and steel between Russia and the Union. Investments in the Russian energy sector have also been put on hold, along with transactions with Russian state-owned companies.

At that time, Brussels also began to limit the export of equipment and technologies used in the energy sector to Russia.

Vodka fell victim first and only then oil

Among the 219 Russian private individuals, the fifth package of sanctions in April most likely negatively affected the daughters of Vladimir Putin. At the same time, this package of sanctions meant, above all, another tightening in the field of trade. For example, European ports were closed to Russian ships, but ships carrying energy carriers were still given the green light to enter the territory of the Union.

What should also be mentioned from the fifth sanctions package is that:

  • Russian and Belarusian road transporters were also expelled from the Union;
  • a ban on the export of jet fuel was ordered;
  • which, on the other hand, has been banned from importing: Russian coal and all other fossil fuels, as well as wood, concrete, fertilizer and vodka.

The sixth package of sanctions from June was the one that banned the import of Russian oil and certain petroleum products. After that, Prime Minister Viktor Orbán criticized the mentioned sanctions quite a lot and talked about the need to defend the utility reduction in Brussels. In the end, the seventh sanctions package was weightless from Hungary’s point of view.

The eighth package of sanctions will certainly go down in history as the decision on the Russian oil price cap. In addition to the sanctions packages, Brussels also implemented other non-packaged sanctions against Russia. According to this, for example, from September 12, Russian citizens will only be able to obtain an EU visa much more difficult and more expensive.

  • The sanctions imposed on individuals and organizations are currently valid until March 15, 2023.
  • The deadline for trade, energy and financial sanctions is currently the end of January next year.

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