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Oil prices climb as EU announces phased embargo on Russian oil

Oil prices climbed on Wednesday, as the European Union announced a highly anticipated proposal to phase out Russian oil.

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European Commission President Ursula von der Leyen on Wednesday proposed an embargo of Russian oil imports — seaborne and pipeline — to take effect within six months, with a phase out of refined products by the end of the year. The plan is part of a sixth package of sanctions targeting Moscow over its war in Ukraine.

Oil prices came under pressure on Tuesday as traders doubted a ban of Russian oil would materialize from the bloc. But expectations have also been increasing after Germany last week dropped its opposition to such a move.

Von der Leyen also proposed that Sberbank, Russia’s largest bank, and two other major banks be disconnected from the SWIFT international banking payment system.

“Russia provides around a quarter of EU oil imports with Germany the top buyer importing around a third of its oil last year. This development is likely to create severe headwinds for the EU economy, particularly Germany with the potential to push price levels higher and exacerbate the inflationary backdrop,” said Victoria Scholar, head of investment at interactive investor, in a note to clients.

“As such the European Central Bank will be watching closely with market expectations for liftoff on interest rate hikes likely to be brought forward,” she said. European stock markets

were under pressure in early trade.

Investors will also be watching for a Fed decision Wednesday, with expectations largely centering on a 50 basis point interest rate hike, the biggest increase in more than 20 years. Markets are hoping the Fed will get the balance right and not trigger a recession, which could dampen demand for crude.

Concerns over rising COVID cases and lockdowns in China have also been a worry for energy investors, given the country is the world’s largest energy importer.

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