(Bloomberg) --

The European Union is set to weaken its sanctions package on Russian oil after a weekend of wrangling, though it aims to keep a key provision on shipping that would hinder Moscow’s ability to export its crude globally.

The bloc will drop a proposed ban on EU vessels from transporting Russian oil to third countries, while retaining a plan to prohibit insuring those shipments, according to documents seen by Bloomberg and people familiar with the matter.

Greece, which is among the world’s largest shipowners, was among the member states that pushed for the provision to be removed from the EU’s sixth package of sanctions over Russia’s invasion of Ukraine, citing a lack of agreement among Group of Seven nations, the people said.

Prohibiting European vessels from transporting Russian oil to any destination in the world would have further dented Moscow’s exports -- a vital source of hard currency.

Even so, a ban on providing insurance -- and other services -- to shippers would still be a significant impediment for Russian oil exports. Shipping companies cover their vessels against risks including oil spills through so-called protection and indemnity clubs. These clubs collectively purchase reinsurance from 80 reinsurers, including more than 20 of the world’s largest providers. That means they can’t ignore EU law.

EU countries are still debating the sixth package this week, with diplomats trying to overcome objections from Hungary to a proposed ban on Russian oil. They were unable to reach a deal over the weekend. 

Read more: EU Push to Ban Russian Oil Is Stalled by Hungarian Demands

In its first proposal, the EU had planned to prohibit the transportation, including through ship-to-ship transfers, to third countries of crude oil and petroleum products that originate in Russia or have been exported from Russia.

The EU’s executive arm is also proposing to ban European companies from providing services, including insurance, needed to transport Russian oil to third countries. That provision is expected to stay, despite the reluctance from some member states, the people said. Discussions between member states are ongoing and measures could change until they are approved by all 27 countries.

Under the current proposals, the ban, which exempts goods that don’t originate in Russia even if they transit through the country, would become operational three months after it’s formally approved. 

In practice, this would likely restrict Russia’s oil sales, with major industry players more likely to stay away. Instead, the trade may move more underground, with smaller shippers stepping in.

“You’ll find an entire of the shipping market will need to be dedicated to this trade. There are many words for it, but it’s clearly not mainstream,” Mike Muller, head of Asia at Vitol Group, said Sunday on a podcast produced by Dubai-based Gulf Intelligence. “The oil will trade at a discount and the ships will trade at a premium because the ship owner engaging in this business may find his ships aren’t accepted by anybody else for some time to come.”

Read more: Trading Russian Oil Will Become Harder From Mid-May, Says Vitol

The EU’s proposal seeks to ban crude oil over the next six months and refined fuels by early January. European companies would also be barred from providing “technical assistance, brokering services, financing or financial assistance or any other services related to those prohibitions.”

The EU had offered Hungary and Slovakia until the end of 2024 to comply with the measures and the Czech Republic until June of the same year since they are heavily reliant on Russian crude. Bulgaria was also seeking a similar transition period, the people said.

The EU had hoped to reach an agreement on Sunday to align with a G-7 announcement to phase out Russian oil, ahead of Moscow’s Victory Day parade, which commemorates Russia’s defeat of Nazi Germany in World War II.

Read more: Putin Says Russia Fighting in Ukraine Like in World War II

The people said Hungary’s stance wasn’t political and that Budapest was seeking technical assurances that would guarantee its energy security given how reliant the country is on Russian supplies. Hungarian Prime Minister Viktor Orban has said that his country needs more time and investments to make the transition. Diplomats remain confident that an agreement can be reached in the coming days.

One of the people said that supplies from Kazakhstan are central to those technical discussions, as well as guarantees on the investments needed to finance the transition away from Russia, including for infrastructure in Croatia. Oil that originates in Kazakhstan and any other third country would be exempt from the ban even if it transits via Russia.

The ongoing haggling over oil has meant that the rest of the measures the EU has proposed as part of its sixth suite of sanctions are also in limbo. Other proposed steps include cutting more Russian banks off the international payments system SWIFT, including Russia’s largest lender Sberbank; restricting Russian entities and individuals from purchasing property in the EU; and a ban on providing consulting services to Russian companies.

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