Europe increases the pressure of sanctions against energy from Russia. On the one hand, this Monday the agreement to apply the embargo to all oil imports from Moscow arriving by ship to the European Union entered into force. Brussels predicts that it will affect, by the end of the year, 90% of the crude that the Kremlin sold to the community club before the war in Ukraine. And, on the other hand, the Twenty-seven have agreed on a ceiling, which has already begun to be applied, of 60 dollars per barrel exported by sea to third countries. This maximum price —agreed on Friday by the EU and joined a day later by the G-7 and Australia— is a way of reducing Moscow’s profits from sales to countries like China or India, which in recent months they have seized the opportunity to buy cheap thanks to the isolation of the Vladimir Putin regime following the invasion that began on February 24.
With the entry into force of this measure, the most far-reaching in the list of punishments for the Kremlin’s finances in the energy field, the restrictions on Russian gas remain as the great pending challenge, although the closure of the faucet to Europe by Moscow and the search for alternatives that the most dependent countries have implemented have greatly reduced the relevance of this possible measure.
“The top [al petróleo ruso] it will provide advantages to different players, for example to India”, confided the Commissioner for Economy and Finance, Paolo Gentiloni, on Monday.
Europe began very early to tighten its belt on Russia with economic sanctions: since the start of the invasion of Ukraine, on February 24, there have already been eight packages, the first three approved almost immediately after the start of the war. And the ninth batch of sanctions is already being finalized, although there are fewer and fewer tools left in the box.
Some 1,300 people and 155 companies currently appear on the blacklist in Brussels. Europe has also closed airspace to Russian flights and its ports to Russian ships, banned access to the SWIFT system of several Russian banks, banned imports of coal and other solid fossil fuels from Russia — the first sanction energy, approved on April 8—, as well as the import of goods such as wood, cement, shellfish or alcoholic beverages. It has also been prohibited for months to buy, import or transfer gold originating in Russia, including jewelry, although in the end a similar agreement has never been reached for diamonds, especially due to pressure from countries like Belgium, which have a flourishing business in this sector.
The debate on imposing a cap on the price of gas also entered the discussions early, although it ran into fierce opposition from countries like Germany, one of the most dependent on Russian gas. However, these discussions have been losing steam, especially since Moscow ended up closing of their own accord his faucet, in an attempt to subdue a Europe anguished by the endless spiral of the prices of this basic material.
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As the President of the European Commission, Ursula von der Leyen, recalled this weekend, in just eight months Russia has already cut off 80% of its gas supply by pipeline to Europe, despite which the Old Continent has managed to fill up to 96% its reserves for this year, although it has been based on skyrocketing prices and in the midst of measures and tense negotiations between the Twenty-seven to contain them.
Exceptions in Hungary and Bulgaria
Nor has it been easy to negotiate the sanctions related to Russian oil, which will have a next step on February 5, when the European ban on imports of Russian refined products, such as gasoline or diesel, will enter into force. In fact, exceptions have been negotiated for countries such as Hungary, which will be able to continue supplying itself with Russian oil through a gas pipeline, or Bulgaria, which has an exemption until 2024 due to its “specific geographic exposure”.
The Russian government tried on Monday to downplay the new sanctions. “Russia and the Russian economy have the ability to fully meet the needs and requirements of the special military operation,” Kremlin spokesman Dmitri Peskov replied, using the Russian authorities’ euphemism for their military offensive in Ukraine, Reuters reports.
It is true that, until October, Russian oil exports were “resistant to sanctions, import embargoes and buyer boycotts,” the International Energy Agency (IEA) noted in an analysis. In October, Russia’s total oil exports amounted to 7.7 million barrels a day, only 400,000 barrels a day less than before the Ukraine war. The strong reduction in European purchases was offset by Russian sales to countries such as India, China or Turkey.
But according to the international organization, the embargoes that now come into force will cause a “new reallocation of trade” that will end up causing, at the beginning of 2023, Russian oil production to fall by almost two million barrels per day compared to before the war in Ukraine.
And that is going to hurt the Kremlin, underlines the analyst of the Bruegel think tank Simone Tagliapietra. “Oil revenues are the backbone of the Russian budget, they are five times higher than natural gas revenues,” she recalls. “The EU embargo is a strong blow for Putin, as it will force Russia to reorient itself towards Asian markets, selling its oil at a capped price (…) it is a powerful weapon that can be intensified over time to exert more pressure on Putin”.
Europe, in any case, has made a strong commitment to this step. It continues to prepare new sanctions and there are still possibilities for action: from banning the import of uranium that powers some European nuclear power plants to taking new measures against the Gazprombank bank, in which Moscow receives the income from the gas it still sells. Even so, the Twenty-seven know that the margin is shrinking.
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