EU ‘may offer sweeteners to get its ban on Russian oil’

Thomson Reuters/YVES HERMAN

The European Commission is considering offering landlocked eastern European Union states more money to upgrade oil infrastructure in a bid to convince them to agree to an embargo on Russian oil, according to an EU source.

The measures are part of a package of new sanctions against Russia for its invasion of Ukraine, but an agreement on the size of the investment is still needed, the source said on Monday.

Another sticking point is Cyprus’ concerns about a proposed ban on the sale of real estate to Russians.

The commission put forward its original sanctions document last week, but horse trading has delayed approval and the text has already been revised once to try to win over sceptics.

A new version, currently being drafted, is likely to drop a ban on EU tankers carrying Russian oil, after pressure from Greece, Cyprus and Malta, according to the source, who declined to be named.

EU companies would, however, be prevented from offering insurance and other financial services for the transport of Russian oil worldwide, the source added, noting that on this point the original proposal would remain unchanged.

Most EU states will have to implement a Russian oil embargo in full by the end of the year. Hungary – one of the most vocal critics of the new sanctions package – has already obtained an exemption until the end of 2024, as has Slovakia.
Czechia would have until mid-2024.

The three countries are the only eastern EU states with no access to the sea, so risk a bigger economic impact from banning Russian oil.

EU officials say their concerns are legitimate and are now considering spending more than initially planned to upgrade and extend pipelines that would deliver oil from other EU countries.

The source declined to comment on the size of the investment, but suggested that it was not to be calculated in billions of euros, but far less.

The EU is withholding 7.2 billion euros ($7.5 billion) in EU post-COVID recovery funding from Hungary over concerns about the rule of law, and diplomats have said Budapest may be trying to link the oil embargo talks with disbursement of the blocked funds.

Dismissing this, the source said additional funding would be provided for pipeline investment and there was still a debate about whether such money could also be used to upgrade oil refineries in eastern European countries, many of which can currently only process Russian oil.

Cyprus real estate

The other issue concerned Cyprus, where many Russians have invested in property – something the EU wants to ban.

Talks are underway about legal issues that would allow a compromise, the source said.

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The ban on insurance and other financial services for tankers carrying Russian oil is considered a potential serious hurdle to Russian oil exports to China and other trade partners outside the EU, but it is unclear just how effective it would be.

“Nations with less rigorous sanctions protocols may be in a position to import Russian oil using their own flagged shipping and their own national insurance arrangements,” said Marcus Baker, global head of marine and cargo for insurance broker Marsh.