EU oil embargo on Russia expected ‘sooner rather than later’

Good morning and welcome to Europe Express.

The Russia sanctions marathon continues. After two days of meetings, EU ambassadors last night approved the fifth package, which is due to be published in the Official Journal later today. We’ll explore why some EU officials expect the oil embargo to be a matter of time and what form it might take.

Beyond sanctions, EU foreign ministers on Monday are set to discuss the bloc’s so-called Global Gateway strategy (initially geared towards counterbalancing Chinese investments in Africa). I’ll bring you up to speed with why some capitals are expected to call for a policy pivot, countering Russian influence in eastern Europe and Central Asia.

And with the first round of the French elections coming up this Sunday, we’ll look at how Marine Le Pen is channeling Brexit slogans in her bid to win the presidency.

Crude awakening

Josep Borrell, the EU’s top diplomat, said yesterday that it is now more a question of when, rather than if, the EU imposes a blockade on Russian oil, writes Sam Fleming in Brussels.

The topic will be on the table for debate at Monday’s foreign affairs council meeting, Borrell said, adding: “Sooner or later — I hope sooner — it will happen.”

Preparations for an oil ban, potentially as part of a sixth package of EU sanctions, reflect a marked hardening in the mood among member states, driven by the reports of atrocities committed by Russian troops in Bucha and other areas that were under occupation.

Political pressure for action is only mounting. In a symbolic vote, the European Parliament yesterday backed by a large majority an immediate full embargo on Russian oil, coal, gas and — in a potential sign of things to come — nuclear fuel.

But the devil of any new sanctions on oil will inevitably be in the detail. The coal ban that the EU is aiming to push through is likely to take effect only after a three-month phase-in period, according to draft EU plans for the fifth sanctions round, for example.

Among the questions with any oil embargo is exactly which Russian oil products are affected, how long any phase-in period will last, and whether it is a full or partial ban. There will also be the question of an accompanying release of European strategic oil reserves to dull the impact of the measure.

Officials have also flagged ideas such as the imposition of tariffs on Russian oil, rather than a straight ban as is planned with coal, or the option of paying part of the money due for crude imports into an escrow account to be used for reconstruction efforts in Ukraine. The latter is a concept advocated by Estonia but which may struggle to obtain broad buy-in.

The EU is well behind the US when it comes to energy blockades, given it was exactly a month ago that Joe Biden signed an executive order banning the import of Russian oil, liquefied natural gas and coal to the US.

But then the EU is also far more exposed to Russian energy. Politicians are under mounting pressure from electorates because of surging energy prices, which were up nearly 45 per cent year-on-year in March — and member states are spending billions seeking to offset some of the pain at the pumps.

The risk, according to some officials, is that any big new surge in prices driven by fresh sanctions could end up undermining public support for the wider panoply of EU measures in response to Russia’s invasion of Ukraine.

A bar on oil would also be hugely consequential for Russia. Research from the Institute for International Finance in late March found that the EU, UK and US account for close to 55 per cent of Russia’s oil and petroleum product exports in volume terms.

If the EU does move against Russian crude, it will by no means mark the end of the line when it comes to energy sanctions. Already some member states are asking whether restrictions on nuclear fuel should be part of the sanctions regime.

And then there remains the most controversial energy sanction of all — restrictions on natural gas.

Valdis Dombrovskis, commission executive vice-president, insisted this week that the EU could cope with any ban on Russian gas. But internal analysis by the commission’s services points to a chunky 2 percentage point hit to baseline GDP growth expectations from an interruption to Russian gas supplies, according to a person familiar with the matter.

Any such move would be enormously divisive between member states, given the outsized role Russian gas imports play in some EU economies. But given the tide of grim news from Ukraine, the debate over gas sanctions is going to be very difficult to avoid.

Chart du jour: Opposite reactions

The country most affected by a total stop of Russian fossil fuel imports is Lithuania, which has already gone ahead and stopped its gas imports from Russia and is one of the loudest advocates of an oil-and-gas embargo on Moscow. Hungary, on the other hand, has said it is willing to pay for Russian gas in roubles, Vladimir Putin’s proposed retaliation for western sanctions. (More here)

Countering Russia

Last year, the EU announced a so-called Global Gateway strategy, designed (if one reads in between the lines) to counter China’s Belt and Road investment initiative in Africa and other parts of the world.

Now some capitals are calling for the investment plan to be refocused to countries where Russia is using its influence, especially in eastern Europe and Central Asia.

Shifting the investment priorities to counter both China and Russia nowadays “would pay the biggest geopolitical dividend”, said one EU diplomat.

Some even float the possibility for parts of the €300bn investment plan to be used for postwar reconstruction in Ukraine — even as many others point out that dedicated reconstruction funds, including via the sale of seized Russian assets, would perhaps be better suited to the task.

The refocus idea is also meeting some opposition from officials who point to the reputational damage the bloc stands to suffer on the African continent, less than two months after an EU-African Union summit that was all about investments and the Global Gateway strategy. Pivoting away from Africa “is sure to make us lose hard-won allies at the speed of light”, one EU official said.

For its part, the European Commission says the strategy wasn’t necessarily about homing in on one geographical region but rather about encompassing the whole world.

“It’s about how the EU can reduce dependencies while ensuring that Europe remains a connected continent,” said commission spokesperson Nabila Massrali.

She added that individual member states might want to focus the investment strategy on specific areas “in the geopolitical context of today”. But the discussion is unlikely to come to a conclusion on Monday, Massrali said.

Taking back control

Far-right leader Marine Le Pen, President Emmanuel Macron’s main rival in the upcoming French presidential election, has urged voters to “take back control” of France by voting for her on Sunday — in an echo of the successful 2016 Brexit referendum campaign that led to the departure of the UK from the EU, writes Victor Mallet in Perpignan.

At a pre-election rally yesterday in the southern town of Perpignan, one of the few in France to be run by a mayor from her anti-immigration Rassemblement National party, Le Pen appealed to her supporters to make sure they actually cast their ballots in the election. 

“Become citizens again,” she said. “You don’t abstain from a presidential election. Take back control!”

Opinion polls suggest that Le Pen and Macron will win places as the two finalists in the first round of voting on Sunday, and that the far-right leader has a chance of victory over the incumbent Macron in the second round two weeks later. 

“Never has the possibility of a real change been so close,” Le Pen told cheering supporters, arguing that it was time for France to restore law and order, curb immigration — and have a woman president for the first time. 

“Our country is ready and I think it would be a sign of democratic maturity,” she said of the need for a female head of state. “All those who’ve been in power have failed. So to all the French I ask, ‘Should we try something else?’.”

Earlier in the day, Le Pen said she was open to having leftwingers in her government if she beat Macron. 

Le Pen said she could “very well have people for example from the left loyal to [former Socialist minister Jean-Pierre] Chevènement, in other words a sovereignist left, a left which supports reindustrialisation, the defence of our great industries.”

What to watch today

1. European Commission chief Ursula von der Leyen visits Kyiv

2. EU fifth round of Russia sanctions expected to be published in Official Journal

Smart reads

• Weaponisation of finance: In this two-part Big Read, the FT narrates in great detail how the most aggressive financial sanctions to date came together and what that spells for the future of the US dollar — and, to some extent, the euro — as a reserve currency.

• French gloom: The French electorate is more disillusioned by the political system as a whole when compared with Germans, Scandinavians, Poles or Hungarians, according to this poll carried out on behalf of the European Council for Foreign Relations. French respondents think their national political system is more broken than the EU’s, while in Germany the perception was the other way round.

• Postwar ETS: Before Putin’s invasion of Ukraine, the EU had planned to expand its emissions trading system to transport and housing. This policy brief by the Centre for European Reform discusses how to make a higher and more comprehensive EU carbon price both effective and politically feasible.