Europe cools on Russian energy sanctions, fears 'unmanageable' risks

European leaders toned down March 7 threats of tougher energy sanctions on Russian imports of oil and gas after crude futures breached $130/b and the cost of natural gas surged.

Dutch Prime Minister Mark Rutte said sanctions on Russian energy supplies for Europe would have "enormous ramifications" and that countries in the region should "ensure energy supplies are not hindered."

Rutte was speaking at a joint televised press conference with UK Prime Minister Boris Johnson and his Canadian counterpart Justin Trudeau. Rutte added companies should be free to continue dealing with Russia on energy. His remarks were echoed by Johnson, despite other UK government ministers indicating earlier that a ban on Russian oil imports to the UK was still on the table.

"You can't simply close down use of oil and gas overnight, even from Russia," said Johnson. "It is not something every country around the world can do."

Johnson's comments appear to contradict remarks made earlier by James Cleverly, the UK minister of state for Europe and North America, who said a ban on Russian hydrocarbons imports was being considered.

The Dutch leader added that companies should also continue to trade in Russian energy. Shell was forced to issue an apologetic statement March 5 after it emerged the major had purchased a cargo of Russian Urals export crude from Trafigura in the Platts Market on Close assessment process by S&P Global Commodity Insights at a record low differential to Dated Brent.

ICE Brent crude futures hit a 14-year high of $139.13/b in early London trading March 7 in the wake of US Secretary of State Anthony Blinken telling CNN March 6: "We are now talking to our European partners and allies to look in a coordinated way at the prospect of banning the import of Russian oil."

Russia is a significant supplier of oil to the world, exporting more than 7 million b/d of crude and petroleum products, or some 13% of total oil trade.

Diesel imports

"Restrictions, on importing Russian oil, if implemented, would have very different effects on supply depending on the region and whether it is crude or products, but all markets will see a price impact," said Richard Joswick, head of global oil analytics, S&P Global Commodity Insights. "For Europe, apart from crude oil, one key issue is the supply of diesel oil from Russia. If a ban were placed on such imports Europe could release some of its roughly 200 million barrels of diesel in strategic stocks to help cover."

Earlier, Germany's Chancellor Olaf Scholz issued a statement pushing back on tougher energy sanctions restricting flows of Russian oil and gas into Europe's largest economy.

"Europe has deliberately exempted energy supplies from Russia from sanctions," Scholz said. "Supplying Europe with energy for heat generation, mobility, electricity supply and industry cannot be secured in any other way at the moment. It is therefore of essential importance for the provision of public services and the daily lives of our citizens."

These statements signal a significant climbdown by Europe over potentially hitting Russia with specific sanctions banning imports of oil and gas in response to its invasion of Ukraine.