Ukraine has blocked Russian oil exports to southern Europe since early this month because Western sanctions prevent it from obtaining transit fees from Moscow, according to Transneft, Russia’s pipeline monopoly.

As a result of the announcement, international benchmark Brent crude rose by $2 per barrel to trade near $98 per barrel.

Transneft (TRNF p.MM) claimed it paid Ukraine’s pipeline operator Ukrtransnafta for August oil transportation on July 22, but the money was returned on July 28 because the payment did not go through. It stated that shipments have been ceased as of August 4.

Transneft claimed in a statement that Gazprombank, which handled the payment, indicated the money was returned due to European Union limitations.

Instead of determining whether to accept a transaction, European banks must now seek approval from a relevant government authority, according to Transneft, who added that European authorities have yet to agree on algorithms for all banks, complicating the transactions.

Transneft is examining alternate payment channels, but has already requested that the transaction be permitted, according to the pipeline monopoly.

The biggest consumers of oil via the Druzhba route, also known as the Friendship pipeline, are Hungary’s MOL and Unipetrol, which are controlled by PKN Orlen, while Russia’s Lukoil, Rosneft, and Tatneft are the main providers of oil.

Reuters’ requests for comment were not immediately responded to by MOL, PKN Orlen, or Ukrtransnafta.

Since March of this year, Hungary, Slovakia, and the Czech Republic have relied heavily on Russian Urals oil imports via the Druzhba pipeline, reducing their purchases of maritime crude.

A drop in European demand for Russian oil since Russia’s invasion of Ukraine at the end of February has dropped the value of seaborne Urals, which helps to price Druzhba deliveries, to its lowest level in history compared to the dated Brent benchmark.

Moscow calls the invasion a “special military operation”

Normally, Russia provides roughly 250,000 barrels per day (bpd) through the southern segment of the Druzhba pipeline.

Russia, the world’s second largest oil exporter and leading gas exporter, has already restricted gas pipeline flows to many EU nations, claiming issues with turbine maintenance on the Nord Stream 1 pipeline as well as sanctions against “unfriendly” clients.

Source: Reuters

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