EU expected to finalise oil embargo on Russia soon

Hungary is heavily reliant on Russian energy. PHOTO: REUTERS

The European Commission is expected to finalise a new package of sanctions against Moscow as soon as Wednesday (May 4), including a ban on purchases of Russian oil that is likely to be phased in from the start of next year, with a view to starve Russian President Vladimir Putin’s war machine of funds.

The measures were deliberated over at a meeting of European Union energy ministers in Brussels on Monday, with proposals expected as early as Tuesday, but objections raised by Slovakia and Hungary – including a veto threat from Budapest – were expected to necessitate a compromise solution.

These could take the form of an exemption for these member states, or a transition period to wean themselves off Russian energy.

Other members such as Poland have chafed at the idea of continued purchases of Russian oil by the bloc’s members and have pushed for the embargo to be brought into force by the end of the year.

“We want this package to include a very specific and clear date and requirement for all countries... that it should be a complete package without any gaps,” said Polish Climate Minister Anna Moskwa on Monday.

Poland, as well as Bulgaria, have already seen gas supply from Russia shut off over their refusal to pay for consignments in roubles – a Russian demand in the wake of crippling sanctions on dollar trade with Moscow.

The proposal for an oil embargo has gained impetus after Germany appeared to throw its weight behind the measure.

Economy Minister Robert Habeck said on Monday that Europe’s biggest economy would be able to weather any stoppages in the flow of oil imports from Russia, though this would result in shortages.

“We have managed to reach a situation where Germany is able to bear an oil embargo,” Mr Habeck told a news conference. “This means it won’t be without consequences.” 

But Germany has so far withstood pressure from its peers to impose a similar ban on gas imports from Russia, which are crucial to its economy’s functioning.

It has already indicated that it will acquiesce to a demand that it remit euros to a Russian bank for its gas purchases, with the currency then converted into roubles. 

And it is not alone: other buyers of Russian gas such as Italy, Hungary, Austria and Slovakia are also likely to follow suit without an alternative source of supplies.

Russia, meanwhile, has doubled down on its demand for rouble payments, seeking to further stoke the divisions within the union.

In an interview with an Italian TV channel over the weekend, Russian Foreign Minister Sergei Lavrov reasserted that foreign payments for gas would only be accepted once they had been converted to roubles. 

Should the European Commission approve the new package of sanctions, it would be the sixth round of deterrent measures imposed by the bloc against Moscow. 

But Europe’s plans to diversify its sources of oil and gas could be thwarted by heightened competition among its own members as well as with other countries like Japan that have undertaken to reduce reliance on Russian energy.

With more countries tapping a shrinking supply pool, this could mean tight markets and high prices for the foreseeable future. That could mean that reducing Russian energy shipments will remain a pipe dream in the near term. 

The increased competition for limited supplies could spell bad news for Asia as well, which is already grappling with high inflation. The United States’ assurances to Europe that it will make up for the shortfall in Russian supplies will also be of little consolation to Asia. 

Singapore, too, is facing headwinds and Prime Minister Lee Hsien Loong warned on Sunday that as a small country, the Republic has very little bargaining power. 

“If prices go up, our prices go up; if supplies are short, we are squeezed. We cannot avoid these global headwinds,” said Mr Lee in a Labour Day speech in which he revealed that the Ministry of Trade and Industry has estimated Singapore will suffer a hit of about $8 billion a year on higher energy prices – equivalent to 1.5 per cent of gross domestic product. 

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