The European Council agreed in principle to ban maritime oil imports from Russia, leaving an exception for pipeline shipments to secure the vote for Hungary and other states heavily dependent on Russian crude.
“The sanctions will have an immediate impact on 75% of Russian oil imports. And by the end of the year, 90% of Russian oil imported into Europe will be banned,” European Council President Charles Michel said. in a press release.
The Council also agreed to ban Sberbank, Russia’s largest bank, from the SWIFT financial messaging system. It also barred Russian ships from accessing the EU insurance market, a move that is expected to severely restrict Russian shipowners’ access to P&I cover.
The EU will also provide around $10 billion in direct financial assistance to Ukraine to help meet its immediate budgetary needs.
The council still has work to do to finalize the details of the package. However, the sudden end of 75% of Russian oil imports from the EU would have an immediate effect on Kremlin revenues. Europe is Russia’s biggest destination market for oil exports, accounting for almost half of its overseas oil sales, and an EU embargo will force Russian producers to ship farther in order to reach alternative markets in Asia. This will require a reduced selling price to offset the higher transportation costs.
Russia relies heavily on oil and gas revenues for government revenue. Despite the sanctions, Russian government energy revenues have skyrocketed since the invasion began thanks to soaring prices. State oil and gas revenues doubled (year-on-year) to $75 billion in the first four months of the year. As the EU moves to force half of Russia’s crude exports to foreign markets at a discount, Russia is likely to see its energy profits cut.