EU considers more cash for eastern states in bid for deal on Russia oil ban

A handout photo made available by the Hungarian PM's Press Office shows Hungarian Prime Minister Viktor Orban (R) as he welcomes European Commission President Ursula von der Leyen (L) outside the Hungarian PM's office in Budapest, Hungary, 09 May 2022. [EPA-EFE/Vivien Benko Cher / Hungarian PM's Press Office]

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, an EU source said on Monday (9 May).

The measures are part of a wider package of new sanctions against Russia for its invasion of Ukraine, but the adoption of the legal text still needs an agreement on the size of the investment, the source said, adding another sticking point was Cyprus’s concerns about a proposed ban on the sale of real estate to Russians.

Horse trading after the Commission put forward its original sanctions document last week has delayed approval and the text has already been revised once to try to win over sceptics.

New text drops ban on tankers carrying Russian oil

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, said the source, who declined to be named because of the sensitivity of the matter.

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.

Whereas most EU states will have to fully implement a Russian oil embargo by the end of the year, Hungary – the most vocal critics of the new sanctions package – has already obtained an exemption until the end of 2024, as has Slovakia, and the Czech Republic would have until mid-2024.

EU Commission President Ursula von der Leyen was expected to meet later on Monday with Hungary’s Prime Minister Viktor Orbán in Budapest to discuss issues related to European security of energy supply, according to a Commission spokesperson.

No breakthrough on oil embargo after Von der Leyen’s surprise Budapest visit

Progress was made in efforts to convince Hungary to lift its veto on the sixth sanctions package that would see the EU quit Russian oil, European Commission President Ursula von der Leyen said after her meeting with Hungarian Prime Minister Viktor Orbán on Monday evening.

The three countries are the only eastern EU states with no access to the sea, and therefore 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 noted it was not to be calculated in billions of euros, rather far less.

The EU is withholding €7.2 billion in EU post-COVID recovery funds to Hungary over concerns about the rule of law, and diplomats have said that 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.

Bulgaria has also been threatening to veto the oil embargo if it does not get concessions as well, but EU officials have said the Black Sea-facing country has fewer structural issues and risks to its energy security could be addressed in other ways.

Cyprus

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

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

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 & cargo for insurance broker Marsh.

EU proposes 'complete ban' on Russian oil imports within six to eight months

European Commission President Ursula von der Leyen unveiled the sixth package of sanctions against Russia on Wednesday (4 May), including a “complete ban on all Russian oil” and refined petroleum products within the next six months and more sanctions against banks.

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