Oil prices have reached new highs after European Union leaders agreed to prohibit more than two-thirds of Russian oil imports. On Tuesday, Brent crude surpassed $123 a barrel for the first time in two months.

Oil and gas prices have skyrocketed in recent months, fueled by the easing of blockades and the Ukraine conflict. Rising energy costs impose a strain on consumers, making it more expensive to heat homes and drive.

According to the AA, petrol reached a fresh high of 173.02p per litre on Monday. At the same time, the average price of diesel in the UK increased to 182.58p a litre, according to the report.

The conflict in Ukraine has caused Western countries to avoid Russian energy.

Russia presently supplies the EU with 27 per cent of its imported oil and 40% of its gas. In exchange, the EU pays Russia over €400 billion per year.

The EU leaders’ agreement will result in an immediate embargo on Russian oil being delivered into the bloc by sea. Two-thirds of Russian oil is transported by water. However, the agreement, which came after weeks of fighting, contains a temporary exemption for pipeline oil in response to Hungary’s opposition.

Poland and Germany have pledged to stop buying pipeline oil by the end of this year, bringing the ban’s coverage to 90 percent of Russian imports.

Brent crude, the global benchmark for oil prices, has increased by more than 70 per cent in the last year.

On news of the EU ban, oil prices rose further, with Brent crude reaching its highest level since March.

According to Russ Mould, investment director at AJ Bell, confirmation that the EU will reduce its purchases of Russian oil by the end of 2022 is driving up prices since European countries must now find alternative sources of supply.

“It is not feasible to replace that amount of energy with other fuel sources, such as wind, solar, biomass or nuclear, in such a short space of time, so the EU needs to find oil and gas from somewhere,” Mould said.

“This will not be easy because existing global output may well be on contract already, so competition for what is not on contract will now be hotter.”

According to Sophie Lund-Yates, chief equities analyst at Hargreaves Lansdown, the increasing trajectory of oil prices may persist until Western countries explicitly explain how supply would be supplied.

“It’s possible this could get tougher before it gets better,” she said.

“We know that rising energy costs are a particular challenge for households which already have severe pressure on their incomes, but smaller businesses shouldn’t be left out of the equation either – this is a tough time to be heating offices, and at a time when it’s meant to be about rebuilding resilience after the pandemic.”

According to European Council President Charles Michel, the agreement cut off “a substantial source of finance” for Russia’s war machine. It is part of a sixth package of measures authorised at a summit in Brussels by all 27 member countries.

So yet, no restrictions have been imposed on Russian gas shipments to the EU, while plans to build a new gas pipeline from Russia to Germany have been halted. EU members struggled for hours to reach an agreement on the ban on Russian oil imports.

Hungary, which gets 65 per cent of its oil from Russia via pipeline, has rejected the new wave of sanctions. The European Union’s cost-of-living crisis hasn’t helped matters either. Energy price increases, among other things, have dampened some EU members’ willingness for sanctions that could harm their own economies.

(Adapted from BBC.com)

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