EU set to propose a Russian oil embargo, even as Hungary holds out

The EU is likely to propose an embargo on Russian oil in its next sanctions package against Moscow this week, according to Germany's economy minister, but may carve out exceptions for countries such as Hungary and Slovakia that continue to oppose a halt.

Germany has already signaled it is ready to cope with a phased embargo on Russian crude and oil product imports, economy minister Robert Habeck said, as Europe's biggest economy looks to cut its remaining reliance on Russian oil.

"Tomorrow the European Commission will present proposals for a change of action package. I am assuming that there will also be proposals for reducing oil, i.e. an oil embargo. I do not want to anticipate that, but I can say that we have worked hard to ensure that Germany can follow this path and allow it to happen," Habeck told state broadcaster ZDF after a meeting of EU energy ministers in Brussels on May 2.

Germany, Europe's largest consumer of Russian energy, has seen most of its refiners and oil importers switch away from Russian supplies in recent weeks, allowing the country to slash its dependence on Russian crude to 12% of its imports from 35% before the invasion of Ukraine.

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.

Self-sanctioning by European refiners and independent traders has already slashed seaborne flows of Russia's Urals crude, heavy fuel oil, VGO, and naphtha into the region.

Although Russian oil exports continue to flow through to Europe via 1 million b/d Druzhba pipeline, S&P Global Commodity Insights expects to see a loss of nearly 3 million b/d in Russian crude and products exports in the coming months, as more buyers shun Russian oil.

Import dependence

Even as political backing in Europe for a phased ban on Russian oil imports has gained ground, some of its members most dependent on Russian oil have remained at odds with a bloc-wide embargo. Hungary, which is more than 60% import-dependent on Russian oil, has previously called sanctions on Russian energy a "red line."

Hungary's Duna and Slovakia's Slovnaft refineries, both owned by Hungary's MOL, process crude predominantly delivered via Druzhba. However, they can also be supplied with seaborne crude via the Adria pipeline, which brings crude from the Omisalj terminal on the Croatian island of Krk.

Most of Slovakia's and Slovnaft's crude oil supplies are also shipped from Russia by the southern arm of the Druzhba pipeline, which runs through Belarus and Ukraine and continues after Slovakia to the Czech Republic. Slovakia has said, however, it could meet most of its crude oil needs through increased use of the Adria pipeline, which is also known as JANAF.

Asked how the EU could impose an embargo on Russian oil if some member states continue to oppose the plans, Habeck said he expects a "compromise" to be found allowing a bloc-wide embargo to go ahead.

"I assume the European Commission will proceed with appropriate caution... finding a clever compromise in there," Habeck said when asked about objections from Hungary.

According to a Reuters report citing unnamed EU sources, the European Commission -- which held talks with EU member states over the weekend -- is looking to finalize the sanctions proposals ahead of a meeting of EU ambassadors in Brussels on May 4.