In a two day European Council meeting this week, the Council addressed a wide range of issues including finally approving significant sanctions on Russian oil and continuing to focus on what can be done to reduce the food insecurity caused by Russia’s invasion of Ukraine. The conclusions from the two day meeting can be found at European Council, Special meeting of the European Council (30 and 31 May 2022), Conclusions, https://www.consilium.europa.eu/media/56562/2022-05-30-31-euco-conclusions.pdf. The conclusions are eleven pages in length and cover a range of topics. The document is embedded below and the section on sanctions (page 2) and food security are copied below.
2022-05-30-31-euco-conclusions“Sanctions
“4. The European Council is committed to intensify pressure on Russia and Belarus to thwart Russia’s war against Ukraine. The European Council calls on all countries to align with EU sanctions. Any attempts to circumvent sanctions or to aid Russia by other means must be stopped.
“5. The European Council agrees that the sixth package of sanctions against Russia will cover crude oil, as well as petroleum products, delivered from Russia into Member States, with a temporary exception for crude oil delivered by pipeline.
“6. The European Council therefore urges the Council to finalise and adopt it without delay, ensuring a well-functioning EU Single Market, fair competition, solidarity among Member States and a level playing field also with regard to the phasing out of our dependency on Russian fossil fuels. In case of sudden interruptions of supply, emergency measures will be introduced to ensure security of supply. In this respect, the Commission will monitor and report regularly to the Council on the implementation of these measures to ensure a level playing field in the EU Single Market and security of supply.
“7. The European Council will revert to the issue of the temporary exception for crude oil delivered by pipeline as soon as possible.”
“II. FOOD SECURITY
“19. The European Council strongly condemns the destruction and illegal appropriation by Russia of agricultural production in Ukraine. The Russian war of aggression against Ukraine is having a direct impact on global food security and affordability. The European Council calls on Russia to end its attacks on transport infrastructure in Ukraine, to lift the blockade of Ukrainian Black Sea ports and to allow food exports, in particular from Odesa. The European Union is taking active measures to facilitate Ukraine’s agricultural exports and to support Ukraine’s agricultural sector in view of the 2022 season. In this regard, the European Council invites Member States to accelerate work on “Solidarity Lanes” put forward by the Commission, and to facilitate food exports from Ukraine via different land routes and EU ports.
“20. The European Council calls for effective international coordination to ensure a comprehensive global food security response. In this respect, it welcomes the Food and Agriculture Resilience Mission (FARM) – based on the three pillars: trade, solidarity and production – which aims to mitigate consequences for price levels, production and access to and supply of grain. It also supports the UN Global Crisis Response Group, the upcoming G7 initiative establishing a Global Alliance for Food Security (GAFS) and other EU and multilateral actions and initiatives. It reiterates its commitment to keep global trade in food commodities free of unjustified trade barriers, enhance solidarity towards the most vulnerable countries and increase local sustainable food production so as to reduce structural dependencies. The European Council invites the Commission to explore the possibility of mobilising reserves from the European Development Fund to support the most affected partner countries. The European Union welcomes the commitment and support of its partners and of international organisations.
“21. The European Council underlines the importance of the Common Agriculture Policy (CAP) in the EU’s contribution to food security and calls for the swift adoption of the CAP Strategic Plans.
“22. In view of the ongoing fertiliser shortages in the global market, the European Council calls for more concerted efforts to work with international partners to promote a more efficient use of and alternatives to fertilisers.”
It has been clear since the beginning of Russia’s war with Ukraine that the most challenging sanctions for the EU would be on banning Russian oil and gas. The EU has put in place sanctions on Russian coal and will be adding oil on a transitional basis by the end of the year for some 90% of oil imports from Russia with a carve out for oil delivered by pipeline — a carve out needed to address Hungary’s concerns and that of several other Central European countries.
Moreover, on May 31st, the EU and the U.K. agreed to ban insuring ships carrying Russian oil which will likely significantly affect Russia’s ability to export crude oil by ship. See Financial Times, UK and EU hit Russian oil cargoes with insurance ban, May 31, 2022, https://www.ft.com/content/10372dd3-be3c-42b9-982b241a38efcc88.
The insurance ban is one of several other sanctions that the EU is including in its sixth package. See European Commission statement, Opening remarks by President von der Leyen at the joint press conference with President Michel following the special meeting of the European Council of 30 May 2022 Brussels, 31 May 2022, https://ec.europa.eu/commission/presscorner/detail/en/statement_22_3382 (“Indeed, we had a very good discussion tonight. And I am very glad that the Leaders were able to agree in principle on the sixth sanctions package. This is very important. Thanks to this, the Council should now be able to finalise a ban on almost 90% of all Russian oil imports by the end of the year. This is an important step forward. We will soon return to the issue of the remaining 10% of pipeline oil. I want to note that other elements in the package are also important. It is the de-SWIFTing of the Sberbank. The Sberbank is the biggest Russian bank, with 37% of the Russian banking sector. So this is good that we now de-SWIFT the Sberbank. There is a ban on insurance and reinsurance of Russian ships by EU companies; a ban on providing Russian companies with a whole range of business services. And, very important, there is the suspension of broadcasting in the European Union of three further Russian state outlets that were very typically spreading broadly the misinformation that we have witnessed over the last weeks and months.”).
The actions by the EU and the UK are resulting in higher oil prices at least for the present. Russia is also expanding the countries it is choosing not to supply gasl to. See Financial Times, Dutch and Danish set to be cut off by Russia over gas payment dispute, May 30, 2022, https://www.ft.com/content/6715e4e9-d315-4594-8d57-80ce88613685; CNBC, Oil prices
jump after EU leaders agree to ban most Russian crude imports, May 30, 2022,
https://www.cnbc.com/2022/05/31/oil-prices-eu-russian-crude.html
So there is little question but that the sanctions imposed by the U.S., EU, UK, Canada, Japan, Australia and others are being ratcheted up and will present increased challenges for Russia and continued pain at the pump for many global consumers and businesses.
By contrast, the efforts of the EU and others to address the growing food crisis caused by the disruption of Ukrainian agricultural exports, while continuing and being supported by multilateral organizations, seem unlikely to result in significant movement of Ukrainian wheat and other products in the coming months. The EU has been working hard to develop alternative export routes for Ukrainian goods as is reflected in the European Council’s conclusions from the May 30-31 meeting. See also Financial Times, EU steps up effort to bring millions of tonnes of grain out of Ukraine, May 30, 2022, https://www.ft.com/content/0e0f6cd9-03f0- 4150-b330-62032f9a86ad.
However, a recent Politico article reviews the serious challenges to being able to make a significant dent in the exports of Ukrainian agricultural products with the Black Sea effectively closed. See Politico, Only black Sea ships will allow Ukraine to feed the world again, The EU plan to export grain by road and rail will barely move a fifth of regular food supplies, May 31, 2022, https://www.politico.com/news/2022/05/31/only-blacksea-ships-will-allow-ukraine-to-feed-the-world-again00035970#:~:text=The%20EU%20plan%20to%20export,fifth%20of%20regular%20food%20supplies.
Time will tell what options those opposing Russia’s invasion of Ukraine or who are suffering from food shortages caused by the war are able to implement to address the food security challenges that will likely harm tens of millions of people around the world. See May 24, 2022: How severe is the food security challenge?, https://currentthoughtsontrade.com/2022/05/24/how-severe-is-the-food-security-challenge/
Terence Stewart, former Managing Partner, Law Offices of Stewart and Stewart, and author of the blog, Current Thoughts on Trade.
To read the full commentary from Current Thoughts on Trade, please click here.