Immediate EU ban on Russian oil imports would be 'nuts': former US energy official
22nd March 2022 15:53 GMT

Further oil sanctions on Russian should be phased in gradually to allow the market to develop alternative supplies and avoid price spikes hurting energy importers, former US assistant secretary of state for energy resources Francis Fannon said March 22.

Europe is particularly dependent on Russian oil and was importing about 2.7 million b/d of crude and another 1.5 million b/d products, mostly diesel, before the invasion of Ukraine.

But some European member states such as Ireland and Lithuania are calling for a ban on Russian oil to ramp up pressure on Moscow over its war on Ukraine. The calls came during a meeting of EU foreign and defense ministers, prior to a meeting of EU heads of government and Biden on March 24 to discuss the response to the Ukraine crisis.

"These talks about bans tomorrow, that would be nuts," Fannon told the FT Commodities Summit. "What you do is send a signal to the market that you're going to start phasing out oil over time. It allows for the production side to compensate over time and then you secure escrow accounts when that oil is traded so that Putin can't use those revenues to fund [Russia's] war machine."

Existing bans on Russian oil and gas imports by the US and UK are creating dislocations of Russian oil exports but some of the volumes are being displaced to China and India, Fannon noted.

"You're just pushing one side of the balloon and it gets bigger on the other side, those barrels move elsewhere," he said. "We have to find a corresponding offsetting mechanism... if it's going to be ratcheted up, it has to be over time, it cannot be immediate."



Financial sanctions


To date, EU energy sector sanctions have focused on areas such as investment and technology sales, although Germany is moving to try and limit its use of Russian gas.

Although there are no official EU-level sanctions in place for buying and using Russian oil, about 2 million b/d of Russian crude and 700,000 b/d of its oil product exports have already been disrupted as a result of refiners and traders "self-sanctioning", according to S&P Global Commodity Insights.

The EU's latest round of sanctions on transactions with Russian banks and financial institutions has increased the complexity of transacting energy deals via Russian institutions, Amrita Sen, head of consultancy Energy Aspects, said at the same event.

"The latest, fourth round of European sanctions has tremendously complicated exports of Russian crude oil and products being done by a European entity outside of Europe," Sen said. "So now, traders will have to ensure there's no European trader involved in the trade, no insurance company, no shipping company, no financing."

Sen estimated that up to 3 million b/d of Russian oil production will be hit by either official sanctions or "self-sanctioning" by the industry, noting that diesel is by far the worst affected as Europe imports about 1 million b/d of Russian diesel.


Platts ,
22nd March 2022 15:53 GMT