EU set to ban Russian oil, ministers hold crisis talks on gas

By Kate Abnett

BRUSSELS (Reuters) -The European Union was preparing a ban on Russian oil, with possible exemptions for wary countries, as EU energy ministers on Monday held crisis talks on Moscow's demand that foreign buyers pay for gas in roubles or lose their supply.

The European Commission is expected to propose a sixth package of EU sanctions this week against Russia over its invasion of Ukraine, including an embargo on buying Russian oil - a measure that would deprive Moscow of a large revenue stream, but that has so far divided EU countries.

Russia supplies 40% of EU gas and 26% of its oil imports.

To keep the 27-nation bloc united, the Commission may offer Hungary and Slovakia an exemption or a long transition period - with the overall ban likely to be phased in by the year-end, officials said on Monday.

Both Hungary and Slovakia are heavily dependent on Russian crude. Hungary has said it would oppose energy sanctions.

Resistance from other countries to an oil embargo appeared to be fading ahead of a meeting on Wednesday when ambassadors will discuss the sanctions.

"We have managed to reach a situation where Germany is able to bear an oil embargo," German economy minister Robert Habeck said on Monday. "This means it won't be without consequences."

Austrian climate and energy minister Leonore Gewessler said Vienna would agree to oil sanctions if other countries did.

EU countries have paid more than 46 billion euros ($47.43 billion) to Russia for gas and oil since it invaded Ukraine on Feb. 24, according to research organisation the Centre for Research on Energy and Clean Air.

GAS CRISIS TALKS

EU energy ministers will also attempt on Monday to forge a joint response to Russia's demand that countries effectively pay for gas in roubles, after Russia cut gas supply to Bulgaria and Poland last week for refusing to comply with its payment scheme.

Bulgaria and Poland already planned to stop using Russian gas this year and have said they can cope with the cut-off, but the move has raised fears that other EU countries could be next.

"Russia's demand on payments in roubles is an obvious attempt to divide the European Union. So we must respond in unity and solidarity," EU energy commissioner Kadri Simson said as she arrived at the meeting, adding that ministers will discuss contingency plans for gas supply shocks.

An immediate cut-off of Russian gas would tip countries including Germany into recession and require emergency measures such as factory closures to cope, according to analysts.

With many European companies facing gas payment deadlines later this month, EU states are attempting to clarify whether companies can keep buying the fuel without breaching the EU's sanctions against Russia over its invasion of Ukraine.

Moscow has said foreign gas buyers must deposit euros or dollars into an account at privately owned Russian bank Gazprombank, which would convert them into roubles.

The Commission last month told countries that complying with Russia's scheme could breach EU sanctions. But it also said countries could make sanctions-compliant payments if they declare the payment complete once it has been made in euros and before its conversion into roubles.

Russia's decree said a buyer's obligation would be deemed complete only after the foreign currency was converted to roubles.

European capitals are already taking different routes, and have asked Brussels to provide clearer advice.

At a preparatory meeting on Monday ahead of the ministers' talks, Poland said using Moscow's roubles payment scheme would breach sanctions, and asked the Commission to make this clear, officials said. Bulgaria also refused to engage with the Russian scheme before Moscow cut its gas supply.

Meanwhile, Germany has echoed the Commission's workaround to allow companies to pay and Hungary has said buyers can engage with Russia's mechanism.

Ministers will also assess progress on negotiations to make it legally binding for EU countries to fill their gas storage 80% by this winter - with some states seeking more guarantees that countries will share the burden of buying large gas stocks at current high prices. ($1 = 0.9488 euros)