Oil prices jump after EU leaders agree to ban most Russian crude imports

May 31, 2022

In order to win the votes of Hungary and other countries that rely heavily on Russian petroleum, the European Council decided in principle to restrict seaborne imports of Russian oil while preserving a loophole for pipeline exports. “75% of Russian crude oil imports will be affected immediately as a result of the sanctions. By the end of the year, 90% of Russian oil imported into Europe would be prohibited, according to the European Commission”, European Council President Charles Michel stated in a statement.

Sberbank, Russia’s largest bank, was also expelled from the SWIFT financial communications system, according to the Council. It also barred Russian ships from the EU insurance market, a decision that is anticipated to significantly limit Russian shipowners’ access to P&I insurance.

After European Union leaders agreed to seek a ban that would prevent the importation of most Russian oil, global crude oil prices soared to a two-month high of nearly $122 per barrel. The measure is intended to wreak havoc on the country’s finances and prepare the way for a sixth round of sanctions to punish it and Russian President Vladimir Putin for the invasion of Ukraine.

Below are major points to know about the news:

1) Following the EU’s latest push, which came after US and UK curbs on Russian shipments, global benchmark Brent exceeded $122 a barrel, reaching a two-month high. This would immediately cover more than two-thirds of Russia’s oil imports, severing a major source of funding for the country’s war machine. The goal is to put as much pressure on Russia as possible to bring the war to a stop.

2) 75% of Russian oil imports are projected to be affected immediately by the sanctions. However, Europe’s refusal to accept the country’s supply forces barrels to travel further distances to eager purchasers in Asia, with India being the largest market for oil from western Russia.

3) In April, India’s seaborne crude oil imports exceeded 4.8 million barrels per day. For the first time in April, Russian-origin crudes accounted for 5% of India’s total seaborne imports, up from less than 1% in 2021 and Q1 2022.

4) Domestic crude oil output has been falling since 2014-15, with just 28.4 million tonnes produced in FY22.

5) The EU’s decision agreed upon during a leaders’ conference in Brussels, sent oil on its way to its longest monthly increase in more than a decade. Hungary has been resisting an embargo because it wanted assurances that its energy supply would not be impacted. Members overcome Hungary’s objections.

6) The EU sanctions would prohibit the acquisition of Russian crude oil and petroleum products transported by sea to EU member states, with a temporary exception for crude delivered by pipeline.

7) Volodymyr Zelenskiy stated in a video speech to the European Council that Russia “bets on disorder” by inflating energy costs and encouraging Europeans to oppose their governments. He encouraged policymakers to accept the sixth sanctions package, which would include limits on Russian oil.

8) Russia has threatened to restrict pipeline exports to a Dutch energy company after halting gas supplies to Poland, Bulgaria, and Finland. After refusing to accept new payment terms set by Russia, including opening a rubles account with Gazprombank, GasTerra will stop receiving supplies from Gazprom on Tuesday.

9) According to people familiar with the situation, the operator of Russia’s Sakhalin-2 liquefied natural gas facility has ceased distributing the fuel to a former Gazprom PJSC trading subsidiary seized by Germany.

10) Crude oil futures rose further in mid-morning Asian trade on May 31, adding to overnight gains of almost $2/b for ICE Brent crude after the EU agreed to prohibit Russian oil imports.

Also read: Russia-Ukraine crisis: Crude oil prices soar past $100 a barrel – Cause for worry for India

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