EU embargo on Russian oil: Negotiations on key pipeline exemption for Hungary

The 27 delegates considered yesterday Sunday a new proposal to temporarily exempt a key oil pipeline for Hungary from the EU's progressive embargo on Russia's oil, in order to lift the blockage of the 6th package of sanctions against Moscow on the eve of the Brussels summit.

The proposal, tabled by the European institutions and France, which holds the rotating EU presidency this semester, provides for an embargo on Russian oil transported by sea until the end of the year, with the exception «for the time being» of that transiting through the Druzhba pipeline, which mainly supplies Hungary, Slovakia and the Czech Republic, sources close to the European Commission said.

«The issue of Druzba will be raised again soon,» a European source assured.

Hungary, a landlocked country with no access to the sea, which is 65% dependent for its supply on oil transported from Russia via the Druzhba pipeline, opposes the embargo on this pipeline and rejected the first offer to opt out for two years. Budapest has asked for at least four years and European funding of almost €800 million to adapt its refineries.

But while the Hungarian government's pandemic recovery plan remains blocked in Brussels because of the dispute with Budapest over the rule of law, it seems difficult to agree on European funds.

There was no agreement on the new proposal submitted to the ambassadors of the member countries yesterday Sunday and a new meeting is planned this morning, before the start of the Summit at 17:00 (Greek time), which is expected to conclude tomorrow morning, Tuesday.

It is a «difficult and complex discussion that takes time, we are trying to find a solution to allow the adoption of the new sanctions. We may not be able to reach an agreement» before the summit, a European official warned.

The exemption mainly raises a problem of «equality» between member states in terms of oil imports, which some have raised, according to the same source.

«I hope we will be able to reach an agreement tomorrow (today), but I am not sure, it will depend on the leaders,» a European diplomat said.

The adoption of the 6th package of sanctions on Russia requires unanimity of the 27.

«By targeting oil transported by sea, we are hitting at least two-thirds of Russian oil,» a European official estimated. The EU sanctions are aimed at draining funding for Russia's war against Ukraine.

For the EU, the cost of oil imports ($80 billion) in 2021 was four times that of gas imports.

If a «limited embargo is imposed, excluding the oil pipelines, it will be much less painful for (President Vladimir) Putin's Russia because finding new customers to supply tankers will be much less difficult», pointed out Toma Pellerin-Carlene of the Jacques Delors Institute.

«Gravel in the shoe», «elephant in the room»: the Europeans are worried that if no agreement is reached on the new sanctions, it will cast a heavy shadow over the meeting of the Heads of State and Government, and the consultations have intensified in recent days.

Ukrainian President Volodymyr Zelensky is expected to intervene at the opening of the summit via video link as Kiev steps up pressure on the West to «kill Russian exports», more than three months after Russia began its invasion of Ukraine.

In addition to the oil embargo, the sanctions package also provides for the exclusion of Russia's largest bank, Sberbank (37% of the market) and two other Russian banking institutions from the international interbank data exchange system SWIFT, as well as the addition of around sixty individuals to the EU blacklist.

The 27 are also expected to discuss the provision of liquidity to Kiev to keep the Ukrainian economy functioning - the Commission has proposed €9 billion in 2022 - and the issue of food insecurity due to the blockade of Ukrainian grain exports, which is feared to cause a crisis in Africa.

Reconstruction in Ukraine, where the EU wants to play a key role, will also be on the agenda. Kiev has recently estimated that the damage it has suffered due to the destruction of roads and other infrastructure amounts to some $600 billion.