Germany drops opposition to Russian oil embargo

On Wednesday, German representatives in European Union institutions lifted the country’s objection to a full Russian oil embargo on the condition that Berlin be given enough time to secure alternative supplies, two officials said.

Diplomats and officials say the German shift raises the possibility that EU countries will agree on a phased ban on Russian oil, with a decision likely as soon as next week. However, it remains to negotiate how quickly the union will end its purchases of Russian oil, and whether it will also use measures such as capping prices or tariffs. The United States is pressing its European allies to avoid steps that could lead to a prolonged increase in oil prices.

The debate in Europe over the Russian oil embargo has turned decisively in recent days as Germany and some other countries have taken practical steps to replace Russia with other suppliers. Diplomats say some member states remain cautious about the economic impact of an oil embargo, including Hungary, Italy, Austria and Greece. All 27 EU governments must agree to the oil embargo.

The oil moves come as European Union countries struggle to help member states Poland and Bulgaria make up for the shortage of natural gas. After Russia halted deliveries This week in response to what it described as the two countries’ refusal to pay for imports in rubles. The Kremlin is requiring buyers in the European Union to pay into special bank accounts where deposits from euros and dollars will be converted into rubles.

The European Union pays state-controlled Russian companies about 1 billion euros, or $1.05 billion a day, for energy, according to estimates by Bruegel, a Brussels-based think tank. Critics said the money is funding the Russian president

Russian President Vladimir Putinand its system war in ukraine.

Gazprom, Russia’s largest gas producer, said on Thursday that profits rose in 2021 on the back of higher gas and oil prices.

Senior officials from EU member states discussed oil sanctions on Wednesday and the European Commission, the EU’s executive, will hold further discussions with EU countries in the coming days before submitting a proposal possibly as early as next week, officials and diplomats say.

US Treasury Secretary Janet Yellen said last week that a full European oil embargo on Russia would raise global oil prices, hurting the fragile global economy, and could have very little negative impact on Russia, which could benefit from higher oil prices in its remaining exports. . Noting that Europe could continue to buy oil while restricting Russia’s access to payments, she echoed talk in Europe of transferring payments to an escrow account.

The European Union imports between 3 million and 3.5 million barrels of oil per day from Russia, and sends just under $400 million in daily payments, according to Bruegel. This represents about 27% of the EU’s oil imports. Oil and gas revenues made up 45% of Russia’s federal budget in 2021, according to the International Energy Agency.

According to analysts and traders, many companies have been self-sanctioning, avoiding trading in Russian oil due to reputational concerns and the risk that the Western pressure campaign may soon include Moscow’s energy exports. According to the International Energy Agency, this is already contributing to a sharp decline in Russian oil exports.

EU officials designing the following sanctions proposals will have to keep in mind that it will take some European oil refineries to adjust to receiving non-Russian crude. They also acknowledge that adapting to the Russian oil embargo will be complicated for countries like landlocked Hungary, which receives Russian oil via pipelines.

The bloc is considering the option of combining the phase-out of oil purchases with more immediate measures to reduce demand or reduce payments to Moscow, such as capping prices or tariffs on oil imports. Another possibility is to phase out fast-charging oil purchases and slow pipeline deliveries.

“There are all kinds of things we’re going through,” said a senior EU official. “The goal is to hit the Russians as hard as possible and at the same time reduce” the cost.

While Germany has swayed behind the idea of ​​phasing out Russian oil purchases, Berlin remains skeptical about price caps, tariffs, and proposals to put Russian oil payments into escrow accounts.

German officials suspect Mr Putin will continue to deliver oil if the EU unilaterally lowers the price it pays, and warn that Russia could easily sell its oil to other customers such as India and China rather than accept a lower European price.

Berlin’s change of opinion on oil came after it struck a deal with Poland that would enable Germany to import oil from global exporters through the Baltic port of Gdansk, officials said Wednesday.

The Polish port is located near the PCK oil refinery in Schwedt, Germany, which is controlled by the Russian oil giant.

Rosneft

It receives crude via a Russian pipeline known as Druzhba, which is a Russian friendship line.

The infrastructure of the port of Gdansk, equipped to receive giant oil tankers, is connected to the Russian pipeline by a separate connection operated by Poland. Government officials said this meant that oil imports into Gdansk could immediately pass through the pipeline to the Schwedt refinery to replace Russian supplies.

Officials said the Schwedt refinery was the biggest obstacle to Germany accepting a ban on Russian oil imports because thousands of jobs in the region depend on it and there are no alternative supplies to feed them yet.

The Polish deal was necessary because the German port closest to the refinery, Rostock, did not have the capacity to receive supertankers. In addition, the German railways no longer used oil wagons. German Economy Minister Robert Habeck announced the landmark agreement on Wednesday during his visit to Poland.

About 12% of Germany’s oil consumption depends on Russian imports, Habeck said in a video statement posted on his ministry’s social media, down from 35% before the war. He said Germany was now prepared for the possibility of Rosneft stopping directing oil, a scenario he said would no longer spell disaster for the German economy.

“Rosneft is a Russian state company and they have no interest in processing non-Russian oil,” Habek said.

If Rosneft refuses to process non-Russian oil imports, Germany could place the refinery under state administration under laws protecting strategic assets. Berlin has already taken over supervision of Germany’s main Russian gas trading hub, a subsidiary of Russia’s state-controlled Gazprom.

write to Bojan Pancevski at [email protected], Lawrence Norman at [email protected] and Georgi Kantchev at [email protected]