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What will the EU’s Russian oil ban do?

The EU takes a dramatic step to punish Russia for its war in Ukraine — but with consequences for the global economy.

European Commission President Ursula von der Leyen (R) and President of the European Council Charles Michel leave after a joint press during a special meeting of the European Council at The European Council Building in Brussels on May 31, 2022
John Thys/AFP via Getty Images
Jen Kirby is a senior foreign and national security reporter at Vox, where she covers global instability.

The European Union will ban many Russian oil imports, an aggressive and punitive sanction against Moscow. But it may come with unpredictable costs for the bloc, and the rest of the global economy.

Late Monday, the European Union finally agreed to a partial embargo of Russian oil as part of its sixth sanctions package against Moscow for its invasion of Ukraine. The deal came after weeks of wrangling, mostly with Hungary. Hungary agreed to it in the end, but only after basically getting itself (and two other countries) out of the ban for now, creating a loophole in the penalties.

Most of the rest of the European Union will impose a ban on Russian maritime deliveries of crude oil in the next six months, and refined oil products (things like gasoline and diesel) in eight. The EU agreed to a (theoretically temporary) exemption for oil running through the southern Druzhba pipeline, which will allow Hungary, the Czech Republic, and Slovakia to continue receiving Russian oil for the foreseeable future. Germany and Poland also get oil from the northern branch of the Druzhba pipeline, but both have already agreed they will wean themselves off these imports by the end of the year.

Even a partial EU ban on Russian oil is a dramatic step — one that seemed nearly impossible before Russia launched its war. According to Charles Michel, president of the European Council, this EU embargo will affect about 75 percent of Russian oil imports immediately, and 90 percent by the end of the year. The EU has proposed other sanctions as part of this package, including an insurance ban on Russian oil ships, which will make it harder for Russia to export its oil products around the world. The technical details of the sanctions package are being finalized, and all 27 EU members will have to formally adopt them, likely this week.

The EU’s ban will hurt Moscow, which has been able to withstand some of the sanctions pressure by continuing to export its energy and raw materials. The EU gets about a quarter of its oil from Russia, which, in 2021, came out to about 2.2 million barrels per day in crude, according to International Energy Agency (IEA) data compiled by Reuters. This EU embargo will reduce the volume of trade, and the flow of money, between Europe and Russia —another pressure point against Moscow, as the West also steps up its support for Ukraine with weapons and financing.

This embargo will also come with costs for Europe, especially when it comes to higher energy prices. Russia may escalate its retaliation, too. “It’s shocking that we’ve gotten to this point where the EU is actually moving to sanction Russian oil, because it’s very painful for the EU,” said Emily Holland, an assistant professor in the Russia Maritime Studies Institute at the US Naval War College. “It’s really going to cause serious economic harm. There’s no getting around it.”

It’s not just Europe. The war in Ukraine and the West’s sanctions on Russia are already rippling painfully throughout the global economy. This could affect the rest of the world — especially poorer countries, which are less able to absorb the shocks of higher oil prices. Indeed, after the EU’s announcement, oil prices surged to around $120 per barrel.

“It’s a big stone that is thrown into the water, and it will be felt across the oil market,” said Georg Zachmann, a senior fellow at the Brussels-based Bruegel Institute.

Europe is ready to cut itself off from some of Russia’s oil

In early May, President of the European Commission Ursula Von der Leyen proposed a phase-out of all Russian oil and oil products. “Let us be clear: it will not be easy,” von der Leyen said. “Some member states are strongly dependent on Russian oil. But we simply have to work on it.”

It took weeks, until the European Union finally reached a deal. Hungary is the reason it took so long. Viktor Orban, Hungary’s right-wing and most Putin-curious president, threatened to block any such sanctions, calling any energy embargo an “atomic bomb” for its economy. (Hungary gets more than 60 percent of its oil and 85 percent of its natural gas from Russia.)

In reality, slicing off Russian oil supplies is an “atomic bomb” for a lot of European economies — which is why the bloc required unanimity to take such a step. What it got instead was a veneer of solidarity: a European Union embargo on Russian oil that gave into Hungary’s demands in exchange for Budapest not torpedoing the entire thing.

Europe’s ban only applies to oil transported by tanker, though that represents about two-thirds of Europe’s total oil imports. Europe receives about 750,00 to 800,000 barrels of crude per day through the Druzhba pipeline. Oil shipments flowing through the pipeline are exempt, so Hungary, the Czech Republic, and Slovakia will be allowed to continue to receive Russian oil. The EU has said this exemption is temporary, but right now, it is in place indefinitely.

These countries, which are landlocked and dependent on Russia’s gas, argued that they need more time to transition away from Russian oil. Hungary, for example, is also asking Europe for more money to upgrade their refineries so they can accept crude from elsewhere. It’s also a political win for Hungary’s Orban, who gets to brag that he really stuck it to the European Union, while somewhat insulating his economy from the shock waves the rest of Europe is bracing for.

Europe is not immediately cutting itself off from Russian oil, either. These sanctions phase out crude in the next six months, and refined products by the end of the year. That will give Europe time to adjust. It will also give Russia time to adjust.

Experts said Russian oil revenues might even increase in the short term, with countries importing more oil from Russia before it becomes illegal to do so, and stockpiling as much as they can. Russia will also benefit from the higher oil prices. Benjamin Schmitt, a research associate at Harvard University and senior fellow at the Center for European Policy Analysis who has advocated for tougher energy sanctions on Russia, said the EU should still be trying to deprive Putin revenue in the immediate term — putting tariffs, say, on Russian oil in to may it more expensive. And course, this EU ban doesn’t fully loosen the bloc’s energy dependence on Russia. For now, the natural gas still flows.

“It makes a massive leap in terms of slashing the amount of oil imports that the Europeans themselves are purchasing from Russia by about two-thirds of the total amount,” Schmitt said. “But it still falls far short of what needs to be done in terms of increasing pressure on the regime.”

Even with the carve-outs and exemptions, Europe’s step is a very big one. In the past, the EU has been reluctant to put energy on the table when it comes to dealing with Russia. The Ukraine war changed that. The EU sanctioned coal. Now the bloc is targeting oil.

“It’s still material, it’s still big,” said Ben Cahill, senior fellow for the Energy Security and Climate Change Program at the Center for Strategic and International Studies. “Even if you exempt all the pipeline imports — which is what, say, 750,000 barrels a day, typically — you still have somewhere around 1.5 [to] 1.6 million barrels a day of oil exports that could be targeted.”

What is the impact on the EU’s oil ban? We don’t fully know.

Russia’s brutality, Ukraine’s resilience in defending its democracy and sovereignty — all of that has, remarkably, shifted the calculus in the United States and Europe on the tradeoffs they’re willing to bear to punish Russia. That means inflation, and higher energy prices, in a global economy that was struggling with this all before Russia’s invasion.

Cutting off Russia’s energy exports is what hurts Moscow. But as Holland said, Russia is a major oil exporter. If the West tries to curb its exports, there is the risk of less oil on the global market, period. “The fact that the West is continuing to ramp up sanctions, they want to make sure that Russian oil does not flow to other states, this will continue to keep the price of oil high. There’s just really no way around it,” Holland said.

A lot will depend on where Europe goes to replace Russian oil, and whether Russia can find replacement buyers for the oil that would typically go to Europe — places like India, for example. “The big question is: how much the EU measures knock Russia oil offline versus just forcing it to reorient flows elsewhere,” Cahill said. “And so we don’t know the answer to that question yet.”

This exposes the uncomfortable dilemma: It’s probably better for the global economy if Russia can still sell its oil, even on the cheap. But if Russia can still sell oil, it maintains a source of hard currency to finance its war efforts in Ukraine.

If the EU’s ban (along with other sanctions, like that on ship insurance) does cut Russia out and shrink the amount of oil available on the global market, the cost will go up, and that supply crunch will hurt in the US and in Germany and other parts of Europe. But it will also hurt poorer countries, who are less-equipped to competed on the global market, and who didn’t really have a say in the sanctions regime.

This EU embargo also exposed some fault lines in Western unity — fissures that Putin, ever the opportunist, may find a way to exploit as the war drags on. Russia has already cut off energy supplies to countries like Bulgaria and Poland, and it could retaliate even further.

As von der Leyen said: “it will not be easy.” But Western governments may be underselling just how difficult and disruptive such measures will be, even if they are among the tools to help support Ukraine. “Everybody’s excited. ‘Yes, let’s punish Russia. We need to stop sending oil funds into their war chest,’” Holland said. “Yes, all those things. But what does that mean as a consequence is not getting center stage.”

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