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The move was confirmed on Friday after diplomats approved a sixth package of EU sanctions that bars the majority of oil imports from Russia.
It followed weeks of fraught negotiations as leaders seeking to slash Moscow's oil revenue while it attacks Ukraine tried to win over sceptics, especially Hungary, fearing an economic crisis at home.
Although a compromise deal will allow countries including Hungary to keep using Russian pipelines, shipments by sea will be banned, and officials hope that imports will fall by about 90 per cent.
After a six-month transition period, companies in the EU will be banned from insuring or financing oil shipments to third countries, the European Commission said.
"This will make it particularly difficult for Russia to continue exporting its crude oil and petroleum products to the rest of the world since EU operators are important providers of such services," it said.
The UK government has not confirmed or denied reports that London's vast insurance market will follow suit. An EU official said sanctions in general were being co-ordinated with western partners.
Some analysts have expressed concern that Russia will end up earning more money for less oil as prices rise. But the hope of western officials is that Moscow will have to offer bargains to find new buyers.
"We cannot prevent Russia selling their oil to someone else, we are not so powerful," said EU foreign policy chief Josep Borrell. "But we are the most important client for Russia. They will have to look for another one and certainly they will have to decrease the price."
Russia has until now been the EU's main supplier of oil and gas, giving the Kremlin a geopolitical hold over its neighbours that Europe now wants to bring to an end. The US has already banned Russian oil and Britain said it would stop imports this year.
The EU embargo will be phased in over six months for crude oil and eight months for refined products. Landlocked Hungary, Slovakia and the Czech Republic can continue to receive pipeline oil.
Bulgaria and Croatia also won more time to phase out Russian oil but EU officials say they hope to revisit the exemptions as soon as possible.
Hungary, which had been the main obstacle to an embargo, eventually relented on Monday after receiving assurances that its neighbours would step in if pipeline supplies were disrupted.
It then caused a final delay by pushing successfully for Patriarch Kirill of Moscow, a religious leader and prominent pro-Kremlin figure, to be removed from the EU sanctions list.