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Oil Agreement May Trigger New EU Sanctions: Banking Sanctions Update for May 29-June 4, 2022

European Union leaders are meeting in Brussels Monday and Tuesday to finalize details of a sixth round of sanctions against Russia.

On Monday night, a possible breakthrough was reached with regards to enacting an oil embargo against Russia. According to The Wall Street Journal, "The embargo would include an exemption for oil delivered from Russia via pipelines, an amount that makes up one-third of EU oil purchases from Russia. EU officials said that by the end of this year, the embargo would cover 90% of previous Russian oil imports."

This exemption would placate Hungary, which relies heavily on Russian oil. Hungarian Prime Minister Viktor Orban said the proposal "is a good approach."

An agreement on oil sanctions has been a challenge for weeks, as so many countries depend on Russian crude.

"There is no compromise for this moment at all," Orban had said over the weekend, according to Reuters. And Robert Habeck,  Germany's economy minister and vice-chancellor was quoted in Fortune Sunday, saying European unity against Russia's invasion of Ukraine is "already starting to crumble."  

But if an oil embrago deal is secured, a sixth round of sanctions will most likely go forward. The latest measures could include cutting Russia's biggest bank, Sberbank, and several other banks from the SWIFT messaging system, and adding more individuals to a list whose assets are frozen. In addition, the EU may also ban Russian broadcasters from the EU airwaves.

Meanwhile, a Moscow newspaper reported that Russia may attempt to avoid default and settle its Eurobond obligations by using a mechanism similar to the plan used to pay for Russian gas in rubles.

According to the Global Banking & Finance Review, “Russian Finance Minister Siluanov said that Moscow would continue to service its external debt in rubles, defending its role as a reliable borrower by all possible means. In order to receive payments, Eurobond holders will have to open foreign currency and ruble accounts at a Russian bank.”

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