Tuesday, June 28, 2022

How EU sanctions on Russian oil imports could affect gasoline prices

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Latvia’s Prime Minister Krisjanis Karins says EU countries should not “get bogged down” in their own personal interests. “It will cost us more. But it’s only money. Ukrainians pay with their lives,” he said.

The EU will impose an embargo on Russian oil after leaders agreed a plan to ban more than two-thirds of imports as part of an escalation of sanctions over the war in Ukraine.

It is the bloc’s sixth round of sanctions against Moscow since February’s invasion, with all 27 member states having to agree on measures.

European Council President Charles Michel believes the latest move will cut “a huge source of funding” for Russia’s war machine.

Just hours after the new measures were announced, oil prices were trading above $123 a barrel, a two-month high and 75 percent higher than a year ago.

It turns out record high petrol and diesel prices continue to hit drivers in the UK, with the price of diesel meaning an average tank costs more than £100 the first time.

This morning the average UK petrol price rose to a new record high of 173.02 per litre, meaning a standard 55-litre tank costs more than £95 to fill up, with experts warning of further increases ahead of the EU’s announcement.

“Unfortunately, with crude oil prices consistently above $115 a barrel last week, worse is yet to come, just in time for the anniversary holiday, especially as gasoline is now more expensive than diesel on the wholesale market,” said Simon Williams, fuel spokesman for the RAC.

Before the war, about 18 percent of Britain’s diesel needs came from Russia, but Britain has gradually reduced its imports after imposing its own restrictions on oil from Russia.

Although the UK is less dependent on Russian oil than many EU countries, it has been hit by the current uncertainty, which is pushing up prices in interconnected markets.

Europe currently imports around two million barrels a day from Russia.

Crude oil prices have already risen 60 percent this year on fears of supply disruptions from Russia. The EU imports around 40 percent of its gas and 27 percent of its oil from Russia, so it’s likely that gasoline prices on the continent will fall in the short term as countries find alternative sources.

But as Latvia’s Prime Minister Krisjanis Karins says: Member countries should not “get bogged down” in their personal interests. “It will cost us more. But it’s only money. Ukrainians pay with their lives,” he said.

The EU has approved a plan that will cut 90 percent of oil imports from Russia by the end of the year, with more than two-thirds of supplies immediately falling under the ban.

Imports arriving on ships that account for two-thirds of all EU supplies from Russia will be halted immediately, but the remaining third, flowing from the Druzhba pipeline, will remain unaffected for the time being following Hungary’s resistance.

The much-delayed sixth package of EU sanctions, announced after the first day of a two-day summit of the bloc’s 27 leaders, marks the toughest action the EU has taken against Moscow since invading Ukraine in February .

The embargo would cover 90 percent of all imports from Russia once Poland and Germany, also connected to the pipeline, stop buying by the end of the year.

The remaining 10 per cent will be temporarily exempted from the embargo to allow landlocked Hungary – which has opposed the EU package – as well as Slovakia and the Czech Republic, all connected to the southern branch of the pipeline, to have access which it is not has easy replace.

European Commission President Ursula von der Leyen said the move to “end our dependence on Russian gas, oil and coal as soon as possible” would require a new approach that would include energy conservation, diversification away from fossil fuels and a “massive” investment in fossil fuels would require fuels.

EU leaders have not confirmed how long the embargo on Russia will last, saying only that it will be “temporary”.

The EU will ban three state-owned Russian broadcasters from broadcasting content in member countries.

Russia’s largest bank, Sberbank (SBMX.MM), will be excised from the SWIFT bank messaging system.

The summit also brought political support for a €9bn package of EU loans.

Leaders also backed the establishment of an international fund to help post-war Ukraine reconstruction, with details to be finalized later.

There are also plans to speed up work to help Ukraine get grain out of the country to global buyers by rail and truck, with a Russian naval blockade preventing exports by sea.

EU foreign policy chief Josep Borrell said the latest round of sanctions against Russian oil will “cripple Putin’s war machine”.

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