Europe Energy Supply Takes Another Hit as Russia Oil Pipe Halts
Comment of the Day

August 09 2022

Commentary by Eoin Treacy

Europe Energy Supply Takes Another Hit as Russia Oil Pipe Halts

This article from Bloomberg may be of interest to subscribers. Here is a section:

In the first days of August, before the halt, Russia sent just over 24,000 barrels a day to the Czech Republic and the same volume to Slovakia through the Druzhba, according to industry data seen by Bloomberg. Flows toward Hungary zero due to planned maintenance at the country’s processing facilities, the data showed.

Ukrtransnafta JSC, which operates Ukraine’s oil pipeline network and oversees the transit of crude via the southern leg of the Druzhba link, “stopped providing oil-transportation services” through its territory on Aug. 4, Transneft said in a statement on Tuesday. There was no immediate comment from Ukrtransnafta.

The contract between Transneft and Ukrtransnafta requires 100% prepayment for transit flows. While the Russian pipeline operator paid the August transit fee on July 22, it received the money back on July 28, Transneft said. Slovak crude-pipeline operator Transpetrol, in a separate statement, confirmed Transneft’s payment failed to go through and was returned to the company by the bank.

The European banks involved in the transaction are not authorized to make their own decisions on cross-border payments from Russia due to sanctions and need approvals from their national regulators, according to Transneft. 

The Russian oil-pipeline operator said it has appealed “to an authorized bank for further transfer of information to the European regulator in order to obtain permission to conduct settlements under an agreement with Ukrtransnafta.” It is also looking at alternative ways to transfer funds. 

Eoin Treacy's view

There is a lot of commentary in the media about how successfully the HIMARs artillery have offset Russia’s offensive capability in Ukraine. Time will tell how true that is, but Russia has every reason to exercise its influence over the European energy sector. Choking off supply of oil and gas to Europe is all part of Russia’s playbook to ensure Europe has a very uncomfortable winter.

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