Russian oil transit halted via Druzhba pipeline to central Europe

The supply of Russian oil to three European countries through Ukraine has been halted as the transit payment cannot be processed due to sanctions, Russian firm Transneft has said.

Russian state pipeline operator Transneft said shipments were halted through the southern branch of the Druzhba oil pipeline, which flows through Ukraine to the Czech Republic, Slovakia and Hungary.

“On August 4, the delivery of Russian oil via the territory of Ukraine was halted,” the oil pipeline operator said in a statement on Tuesday.

The company said the Ukrainian side stopped the oil transport “due to not receiving funds for these services”.

However, deliveries to Poland and Germany via Belarus were continuing “as usual”, Transneft added.

International benchmark Brent crude jumped by $2 per barrel to trade near $98 as the news added to energy supply concerns, but turned negative later in the day.

Europe is heavily reliant on Russian crude, diesel, natural gas and coal. Energy prices have rallied this year on short supply as Europe scrambles to replace Russian energy with alternative sources.

A spokesman for Slovak refinery Slovnaft confirmed that the transportation of oil through the Druzhba pipeline had been suspended for several days.

But he said that the company’s Bratislava refinery was operating and supplying the market.

“According to our information, there were technical problems at the bank level in connection with the payment of transit fees from the Russian side,” Anton Molnar said in a statement.

‘Dealing with the situation’

Linda Vaskovicova, head of the Slovak oil transporter Transpetrol CEO’s office, told the local TASR newswire: “We can confirm that the transportation of oil through the Druzhba pipeline through the territory of the Slovak Republic is currently suspended.”

She said that the authorities were “dealing with the situation”.

Molnar also said that Slovnaft had initiated talks with Ukraine and Russia about the possibility of Hungarian refinery MOL and Slovnaft paying the transit fees, which would enable the resumption of oil supplies.

Hungary is one of the countries most reliant on Russian oil, and its government has been lobbying hard to get exemption from wider European Union sanctions on Moscow.

Hungary can import oil via the Adria pipeline that connects the Omisalj oil terminal in Croatia to its Duna refinery in Hungary, but the capacity of the route is limited and shipments are much more expensive than via Druzhba.

Slovakia’s options for alternative oil imports are even more limited, as it has to import oil via Hungary.

Under the new sanctions, European banks have to receive approval from a relevant government authority instead of deciding by themselves whether to allow a transaction, Transneft said.

It said European regulators had yet to decide on algorithms for all the banks, which complicates the dealings.

Transneft is considering alternative payment systems, but had sent a request for the transaction to be allowed, the pipeline monopoly said.

Since Russian President Vladimir Putin sent troops to Ukraine, Washington and Brussels have pummelled Moscow with unprecedented sanctions, cutting Russia off from international financial institutions.

The EU has looked to reduce its dependence on Russian energy resources and has agreed to ban more than two-thirds of Russian oil imports.

The United States banned Russian oil and gas days after the start of Russia’s military campaign on February 24.