GThe EU states agreed on new sanctions against Russia just in time on Wednesday. Otherwise they would have risked embarrassment this Thursday. The first meeting of the European Political Community takes place there, 44 heads of state and government meet at Prague Castle. It should send a powerful signal to Moscow: Europe stands united against the Russian attack on Ukraine and the annexation of its territory. How would it have worked if the 27 EU countries had come to dispute sanctions? Their ambassadors had to work overtime to clear up the disputed points.
Above all, this concerned a price cap for Russian oil, the most ambitious and at the same time most complicated measure in the eighth package. With the sixth package, the member states decided in May that they would no longer import crude oil from Russia by sea from December 5. The price cap does not affect them directly. However, he is supposed to ensure that Russia does not sell its “excess oil” at high prices to other states and thus finance its war. The G-7 countries have agreed on this, and they have an important lever in their hands. Their oil tankers transport most of the Russian oil, and these shipments are mostly insured in Europe, particularly in London.
“One strike and you’re out”
However, the three EU countries with large tanker fleets fear that they will ultimately lose out if suppliers do not adhere to the price cap. After all, the Kremlin has already threatened that it will not sell oil with such a restriction. Above all, Greeks, Cypriots and Maltese fear that tankers registered with them will be flagged out so that they are no longer subject to European jurisdiction. A special clause was agreed to deter shipowners from doing so: If a ship – no matter what flag it is flying – delivers oil at a higher price just once, it may never use European services again, such as insurance. “One strike and you’re out” is what diplomats call it, alluding to a practice in American criminal law. In English: There is no second chance.
But that alone was not enough to get the three countries on board. They also demanded financial compensation if deterrence doesn’t work and they lose market share. In EU language, it was now formulated as follows: If violations of a price cap lead to “significant business losses”, the EU Commission will “propose measures to dampen the negative effects”.
The member states have not yet determined how much Russian oil may cost in the future. This is to be discussed within the framework of the G 7 and requires a separate resolution from all EU states. As can be heard in Brussels, this will probably not amount to a fixed amount, but a “dynamic cap”. The price of oil has fallen in the last three months and has risen again in the past few days. In fact, Russia already has to grant a considerable discount on the world market price in order to get rid of its crude oil.
Hungary only played a supporting role
Whether the oil price cap can be formally enforced depends, on the one hand, on whether large buyers such as India and China allow the West to dictate the price. On the other hand, the EU states must set up an effective control system. National authorities should check whether suppliers and shipowners are complying with the specifications. Here, Brussels is primarily dependent on the cooperation of the authorities in Greece, Malta and Cyprus.
Hungary played only a minor role in this round of sanctions. Prime Minister Viktor Orbán is calling for an end to the sanctions against Moscow and wants to campaign for this in a referendum. But his country is not affected in this case. The price cap only applies to deliveries by sea – but Hungary, like Slovakia and the Czech Republic, gets its oil via a pipeline from Russia. These supply contracts are not touched, and the three countries are not subject to the oil embargo. There is also an exception for Bulgaria. As agreed in May, the country may purchase Russian oil by sea until the end of 2024 and is not subject to a price cap.
