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EU agrees Russian oil sanctions, gives Hungary exemptions

[May 31, 2022] By Kate Abnett and Jan Strupczewski

BRUSSELS (Reuters) - European Union leaders handed Hungary concessions to agree an oil embargo on Russia over its invasion of Ukraine, sealing a deal in the early hours of Tuesday that aims to cut 90% of Russia's crude imports into the bloc by the end of the year.

The deal excludes from the embargo shipments by pipeline, which Hungary relies on for Russian oil. It aims to reduce Moscow's income to finance the war it launched more than three months ago in Ukraine, with some of the toughest EU sanctions yet.

"The important news is that the EU is still united in its purpose; the purpose is to stop Russia's aggressive war in Ukraine," Latvian Prime Minister Krisjanis Karins said.

The ban on seaborne imports of Russian oil will be imposed with a phase-in period of six months for crude oil and eight months for refined products, a European Commission spokesperson said.

That timeline would kick in once the sanctions are formally adopted, with EU states aiming to do so this week.

Two thirds of the Russian oil imported by the EU comes via tanker and one third by the Druzhba pipeline.

In total, the embargo aims to cover 90% of all Russian imports by the end of 2022. That would include seaborne deliveries as well as Poland and Germany stopping their own imports of Russian oil via pipeline by then, which they have pledged to do.

The remaining 10% would be temporarily exempt from the embargo so that Hungary, Slovakia and the Czech Republic have access via the Druzhba pipeline from Russia.

Oil prices extended a bull run after the EU's agreement, stoking concern about inflation, which was ran at a record high of 8.1 percent year-on-year in euro zone countries this month, Eurostat said on Tuesday.

ENERGY PRICES

With energy prices soaring, leaders will ask the EU's executive Commission to explore ways to curb them, such as through temporary price caps, and work on potential reforms to Europe's electricity market - a move backed by countries including Spain and Greece, but which countries including Germany have opposed.

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Hungary's Prime Minister Viktor Orban listens to a media question as he arrives for the European Union leaders summit, as EU's leaders attempt to agree on Russian oil sanctions in response to Russia's invasion of Ukraine, in Brussels, Belgium May 30, 2022. REUTERS/Johanna Geron

They are also set to endorse a Commission plan to wean itself off Russian fossil fuels within years through a faster rollout of renewable energy, improvements in saving energy, and more investments in energy infrastructure.

And they will call for better EU-wide contingency planning in case of further gas supply shocks. Moscow on Wednesday cut gas supplies to the Netherlands for refusing to comply with a demand to pay for gas in roubles, having already cut off Poland, Bulgaria and Finland.

RUSSIAN GAS NEXT TARGET?

The oil embargo deal follows an earlier ban on Russian coal and allows the bloc to impose a sixth round of sanctions that includes cutting Russia's biggest bank, Sberbank, from the SWIFT international system.

But while several countries already want work to begin on a seventh round of sanctions, Austrian Chancellor Karl Nehammer said: "Gas can't be part of next sanctions."

Europe is heavily dependent on Russian gas, which explains why it has been left out of EU sanctions so far. The EU this month agreed a law requiring countries to fill gas storage to reach at least 80% ahead of next winter, in a bid to create a buffer against supply disruptions.

EU gas storage is currently 46% full.

"Russian oil is much easier to compensate...gas is completely different, which is why a gas embargo will not be an issue in the next sanctions package," Nehammer said.

(Additional reporting by Gabriela Baczynska, Sabine Siebold, John Chalmers, Bart Meijer; Writing by Robin Emmott, Kate Abnett, Ingrid Melander; Editing by John Chalmers and Angus MacSwan)

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