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MaltaToday 4 May 2022 MIDWEEK

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15 maltatoday | WEDNESDAY • 4 MAY 2022 NEWS UKRAINE CONFLICT THE European Union is prepar- ing sanctions on Russian oil sales over its invasion of Ukraine after a major shift by Germany, Rus- sia's biggest energy customer, that could deprive Moscow of a large revenue stream within days. The European Commission is expected to propose a sixth package of EU sanctions this week against Russia over its Feb- ruary 24 invasion of Ukraine, including a possible embargo on buying Russian oil. Kyiv says Russia's energy ex- ports to Europe, so far largely exempt from international sanc- tions, are funding the Kremlin war effort with millions of euros every day. The EU sends $US450 million ($605 million) a day to Russia for oil and $US400 million per day for natural gas, according to cal- culations by analysts at the Brue- gel think tank in Brussels. "This package should include clear steps to block Russia's rev- enues from energy resources," Ukrainian President Volodymyr Zelenskyy said in his nightly vid- eo address. EU may offer Hungary, Slovakia exemptions Russia supplies 40 per cent of EU gas and 26 per cent of its oil imports. But some member countries, notably Hungary and Slovakia, are more heavily dependent on Russian supplies than others. Slovakia and Hungary, both on the southern route of the Druzh- ba pipeline bringing Russian oil to Europe, received respectively 96 per cent and 58 per cent of their crude oil and oil products imports from Russia last year, according to the International Energy Agency. To keep the 27-nation bloc united, the Commission may offer those countries an exemp- tion or a long transition period — with any overall ban likely to be phased in by the year-end, of- ficials said on Monday. Resistance from other coun- tries to an oil embargo appeared to be fading ahead of a meeting on Wednesday when ambassa- dors from EU countries will dis- cuss the proposed sanctions. Germany has in recent days said it could manage an oil em- bargo, having initially resisted for fear of the economic cost. The country believes it could cope if supplies of Russian oil were cut off by Moscow. Economy Minister Robert Habeck on Monday said that Russian oil now accounts for 12 per cent of total imports, down from 35 per cent before the war, and most of it goes to the Schwedt refinery near Berlin. "We have managed to reach a situation where Germany is able to bear an oil embargo," Mr Habeck said. Austrian climate and energy minister Leonore Gewessler said Vienna would agree to oil sanc- tions if other countries did. The United States and Unit- ed Kingdom have already an- nounced bans on Russian oil imports. What impact will an oil ban have on Russia? Around half of Russia's 4.7 mil- lion barrels per day of crude ex- ports go to the EU. Cutting them off would deprive Moscow of a major revenue stream. Europe has paid Russia $US14.94 billion for oil since the start of what Moscow calls a special military operation in Ukraine two months ago, ac- cording to research organisation the Centre for Research on En- ergy and Clean Air. EU countries have paid more than $US47.43 billion to Russia for gas and oil since it invaded Ukraine, according to research organisation the Centre for Re- search on Energy and Clean Air. Of that amount, Europe paid Russia $US14.94 billion for oil. Russian oil production could fall by as much as 17 per cent in 2022, according to an econo- my ministry document seen by Reuters, as the country contends with Western sanctions. Why is the focus on oil instead of natural gas? Weaning Europe off Russian oil is likely to be easier than re- ducing dependence on Russian natural gas. It's harder to find alternative sources of natural gas because it comes mainly by pipeline. Heavy users like Germany say an immediate cut-off could cost jobs, with industrial associations warning of shutdowns in glass and metals businesses. Russian energy giant Gazprom cut supplies to Bulgaria and Poland last week after Russian President Vladimir Putin said that "unfriendly" countries must start paying for gas in rubles, Russia's currency. Bulgaria and Poland have re- fused to do so, like most EU countries. EU ministers meeting on Mon- day warned that complying in full with Moscow's demand for gas payments in roubles would breach existing EU sanctions. Cutting off both natural gas and oil would likely cause a re- cession in Europe, economists say. European governments agreed to stop Russian coal imports starting in August, but that's a relatively small part of energy payments to Russia. What impact will an EU oil embargo have globally? All of Russia's oil couldn't be redirected from Europe to Asia due to shipping and logistical constraints. It's not clear to what extent buyers in countries like India and China would buy Russian oil if it means possible sanctions trouble with the West. The OPEC oil cartel led by Saudi Arabia — which sets pro- duction levels along with allied non-members like Russia — has made it clear it won't increase output to make up for any sup- ply loss from Russia due to a boycott. Global demand for oil was already high as economies re- bounded from the COVID-19 pandemic, and uncertainties over the war exacerbated the tight market and high prices. US President Joe Biden has or- dered releases from the strategic petroleum reserve to combat rising gasoline prices for Ameri- cans, while 30 other nations also have agreed to send more oil to the global market. In the most severe scenario of a loss of Russia's 3.8 million bar- rels to Europe and other coun- tries refusing its oil, a huge price spike to $US180 per barrel could happen, followed by a sharp fall due to declining demand and economic growth. However, Claudio Galimberti, senior vice-president for analysis at Rystad Energy, says "that does not look like it's going to be the case". Rystad's expectation is a loss of 1.5 million to 2 million barrels per day and oil reaching $US120 to $US130 per barrel by year's end. A milder scenario, in which most Russian oil shunned by Eu- rope is snapped up at a discount in other energy-hungry coun- tries, would see a loss of only 1 million barrels per day. Oil prices would drop below $US100 by June and keep falling to $US60 by year's end. That's not too far from today's situation, with some traders and banks shunning Russian oil even without sanctions. European Union prepares next sanctions over Ukraine invasion, including Russian oil ban

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