INTERVIEW: EU sanctions relief would rest on Russian accountability for conflict

The EU is likely to continue ratcheting up its punishing sanctions on Russia, including a ban on most oil imports, unless Moscow accepts accountability for its invasion of Ukraine and a reconstruction plan is agreed, the European bloc's sanctions envoy said in an interview.

As the three-year anniversary of the invasion on Feb. 24 approaches, the EU is set to announce its 16th sanctions package related to the war and further reduce its energy purchases from Russia.

It will come in the face of talks between US President Donald Trump and Russian counterpart Vladimir Putin to end the conflict and potentially ease US sanctions on Moscow.

But Europe remains resolute in finding alternative oil and gas supplies, while cracking down on Russia's shadow fleet, said David O'Sullivan, who has served as the EU's sanctions envoy since 2023 and previously was the union's ambassador to the US.

"We have been implementing a progressive decoupling of the European Union from Russian energy sources, and this is something which will continue," he said.

The EU estimates that residual dependence on Russian energy sources amounts to around Eur1.5 billion/month, which O'Sullivan said is still too high.

Some commodities, including Russian gas, have been tricky to sanction, due to some EU countries' reliance on Russian supplies.

Gas prices skyrocketed in the wake of the invasion, with the benchmark Dutch TTF month-ahead price hitting an all-time high of Eur319.98/MWh ($329.61/MWh) on Aug. 26, 2022, according to assessments by Platts, part of S&P Global Commodity Insights.

Prices have since fallen as member states have diversified supply sources, ramped up LNG capacity, and increased gas storage levels. Platts assessed the Dutch TTF month-ahead price at €55.975/MWh on Feb. 13.

Prices remain sensitive to weather and storage levels, but O'Sullivan said that the situation in the European gas market has returned to normal, with reasonable prices and storage in good shape.

"I think we will get through this winter without any difficulties. And then the issue will be the refilling over the summer period. But I have every reason to believe that alternative supplies will be there," he said.

The EU has slashed Russian gas imports from 136.7 Bcm in 2021 to 28.5 Bcm in 2024. At the same time, imports of Russian LNG have grown, from 13.5 million mt in 2021 to 15.6 million mt in 2024. O'Sullivan said that seeking alternative sources of LNG is now a priority.

"Obviously, that depends a little bit as well on the American colleagues and their willingness to resume exports, which I think seems likely under the new administration," he said.

The EU aims to phase out imports of Russian fossil fuels by 2027.

On the oil side, the EU has banned most seaborne Russian oil imports since the 2022 invasion began. Alongside its allies in Australia and the G7, the EU imposed price caps of $60/b on Russian crude and $100/b on products that typically trade at a premium to crude and $45/b on those that generally trade at a discount to crude.

O'Sullivan said that the price cap has cut Russian revenues and made it harder for Russia to trade its crude.

Sanctions have resulted in Russian oil trading at major discounts. In April 2022 its key crude grade Urals was trading at a discount of over $40/b to Dated Brent, according to Platts assessments. This has since narrowed and was assessed at $15/b on Feb. 12.

"I think you will see a tightening of the surveillance of these ships passing through European waters," he said.

In January, 80.1% of Russia's seaborne crude exports, or 2.7 million b/d, was lifted by tankers not flagged, owned or operated by companies based in the G7, the EU, Australia, Switzerland and Norway, and not insured by Western protection and indemnity clubs, according to data from S&P Global Commodities at Sea and Maritime Intelligence Risk Suite.

Trump's declaration Feb. 12 that he had agreed with Putin to start peace negotiations immediately following a lengthy phone call has put energy markets on notice. But regardless of any progress on ending the war in Ukraine, the EU has strengthened its energy security by reducing its reliance on Russian supplies, O'Sullivan said.

"We will continue to seek to have the greatest diversification possible of our energy sources to avoid ever again becoming highly dependent on a single source, which clearly is a vulnerability," O'Sullivan said.