EU population can expect economic pain from Russian oil embargo, Germany warns

Kremlin’s mechanism to allow for gas payments in roubles breaches EU sanctions

Germany has warned that EU consumers should brace for a big economic hit and higher energy prices as Berlin said it was willing to back an embargo of Russian oil to punish Moscow for its invasion of Ukraine. The European Commission, meanwhile, indicated that a mechanism put forward by Moscow to pay for Russian gas would breach sanctions, signalling further strains over gas supply in the weeks ahead.

Europe was prepared to bear the strain of cutting its use of Russian crude, said Robert Habeck, Germany's economy minister and deputy chancellor. But he said the move should be properly prepared and should consider the high dependency of some EU countries on Russian supplies.

“We will be harming ourselves, that much is clear,” he said ahead of an emergency meeting of EU energy ministers that is debating an embargo on Russian oil.

“It’s inconceivable that sanctions won’t have consequences for our own economy and for prices in our countries,” he said. “We as Europeans are prepared to bear [the economic strain] in order to help Ukraine. But there’s no way this won’t come at a cost to us.”

Mr Habeck said it was important for Europe not to be “faced with economically unmanageable scenarios”. Germany had made “great progress” in finding alternatives to Russian coal and oil, “but other countries may need more time”.

Sixth package

EU energy ministers met on Monday to discuss an expected sixth package of sanctions against Russia that Brussels is drafting.

Diplomats say it will include a phased-in oil embargo to take full effect by the end of the year.

EU ambassadors, who meet on Wednesday, would need to agree unanimously to any commission plan for it to take effect. Irish energy minister Eamon Ryan told journalists at the meeting that Ireland supported strong sanctions implemented as soon as possible, but that it was important to maintain EU unity.

Member states are still split over the idea of a Russian oil ban. Hungary said it would block a deal unless it could be guaranteed supplies from elsewhere. Hungary and Slovakia have infrastructure built to handle Russian crude and have few alternative sources.

Energy ministers also addressed Russian state-owned gas company Gazprom’s decision to cut gas supplies to Poland and Bulgaria after the two countries refused to comply with a Kremlin order to settle payments in roubles via Gazprombank. Brussels has told member states that to use the system established by Moscow would breach EU sanctions.

Speaking at a press conference after the conclusion of the energy ministers' meeting, Kadri Simson, the EU energy commissioner, said Brussels would in the coming days release further, more detailed guidance on what companies can and cannot do when it comes to payments to Gazprom. She warned that paying in roubles according to the procedure set out by Russia would constitute a breach of EU sanctions. – Copyright The Financial Times Limited 2022

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