Ursula von der Leyen
"It will not be easy," said European Commission President Ursula von der Leyen. Image Credit: AP

Brussels: European Union countries will stop importing Russian oil and refined products, the head of the bloc’s executive European Commission said on Wednesday in proposing a sixth round of sanctions against Moscow for attacking Ukraine.

“We will phase out Russian supply of crude oil within six months and refined products by the end of the year,” Ursula von der Leyen told the European Parliament, prompting applause from lawmakers. “This will be a complete import ban on all Russian oil, seaborne and pipeline, crude and refined.” “It will not be easy. Some member states are strongly dependent on Russian oil. But we simply have to work on it,” von der Leyen said of the proposal, which requires approval from all 27 EU countires to take effect.

European energy prices jump

Gas and electricity prices jumped more than 5 per cent, extending Tuesday's gains. Europe relies on Russia for about 25 per cent of its oil and about a third of its gas needs. The proposed sanctions, which also include cutting off more banks from the international SWIFT payment system, add to concern about energy supplies just a week after Gazprom gas halted shipments to Poland and Bulgaria due to a dispute over payment terms.

"Our central scenario envisions more interruptions of Russian gas supplies to Europe going forward," said Mark Haefele, chief investment officer at UBS Global Wealth Management. "Some of the targeted countries may experience economic stagnation or mild contractions in the process." He doesn't expect a complete halt in all Russian gas supplies to Europe.

The EU is targeting a full ban on Russian crude oil within six months and refined products by the end of the year. All services linked to transportation of Russian oil, including financing and brokering also face restrictions. Hungary and Slovakia - which had been opposed to a swift cut-off of Russian crude - will be granted until the end of 2023 to enforce the sanctions, according to people familiar with the matter.

Added risks

The risks only add to the nervousness in the market about how buyers will meet Gazprom's new payment terms. Russia wants companies to open two accounts at Gazprombank JSC - one in euros and one in rubles - so that payments can be converted into the Russian currency. EU Energy Commissioner Kadri Simson said following the request would be a breach of sanctions.

Many buyers facing payment deadlines in the coming weeks are still unsure over how to proceed, a move that's triggering concerns about more supply cutoffs.

Benchmark gas futures for delivery next month jumped as much as 7.4 per cent to 106.75 euros per megawatt-hour, while the equivalent UK contract surged 9.8 per cent. German power for next year, a European benchmark, gained 5.4 per cent to 216 euros a megawatt-hour by 10:15 am local time.

Power prices also gained because of low availability of nuclear power stations in France, the EU's top producer of atomic energy.