Brussels is rushing to finalize the proposed price cap for Russian oil shipments in the coming days after EU governments clashed over the level of the cap and whether to tie it to a series of more sanctions wide.
The EU struggled to settle its differences over the weekend as it tried to stay ahead of the December 5 deadline, when a previously agreed embargo on Russian oil transported by sea comes into force. price cap much lower than that recommended by the European Commission.
Brussels has worked alongside G7 countries to implement the proposed price cap for Russian oil transported by sea in a bid to allow the product to continue to flow while reducing Moscow’s ability to fund its war in Ukraine.
The initiative would ban insurance and other services essential to the maritime shipment of Russian crude unless they are sold at or below a G7-agreed price level.
But while EU member states are willing to sign on, they differ on the level of that cap. “This is a time when we need to send clear signals of unity to Vladimir Putin,” an EU diplomat said, criticizing Poland’s decision to keep the price cap low. “This matter must be resolved well before December 5.”
The commission is pushing for a maximum price level of $65 a barrel, but hawkish member states led by Poland say that would be ineffective because it is too close to the price Russia is already getting on the market, meaning that the sanction would not punish the Kremlin.
Brent crude, the international benchmark, is trading at around $84 a barrel, but Russian oil has fallen at a steep discount as European buyers turn away, with its main Urals grade trading at around $66 a barrel .
Warsaw demanded a much lower price, arguing that it is necessary to ensure that Putin’s oil revenues are reduced. A Polish official said on Sunday that his government supports the price cap principle but considers the $65 level “extremely high” compared to Russia’s cost of production.
Warsaw also wants to include the oil price cap in a broader ninth set of EU sanctions against Russia, the official said, but the committee fears this could further complicate negotiations. Poland and other states are also haggling over a price level review mechanism.
Other EU member states, including those with large maritime industries such as Greece, Malta and Cyprus, want to ensure the price is high enough to keep Russian oil trading – a position likely to be challenged. be supported by the United States.
The US Treasury led the campaign to introduce the G7 price cap, in part because EU sanctions could trigger an inflationary spike in oil prices if too much Russian oil cannot come to market.
If the price cap level is set too low, analysts say Russia could lose the incentive to keep producing, preferring instead to cut production to drive up world prices to compensate.
Moscow has always said it won’t sell to any country using the cap, but the Biden administration hopes countries like China, India and Turkey – which are expected to absorb Russian shipments banned from Europe – will still be able to use the existence of the ceiling to help negotiate cheaper offers.
EU countries will not be allowed to buy Russian oil shipments, even under the cap, as this will not replace new sanctions banning imports by sea.
Ukrainian President Volodymyr Zelenskyy added his voice to the price cap argument on Saturday at a press conference in which he said the cost of Russian offshore oil should be capped at $30-40 a barrel, according to Reuters.
Bringing the oil price cap into force will require not only action by G7 allies, but also unanimous agreement among the 27 EU member states, as it means changing the already agreed EU embargo on oil transported by Russia which begins on December 5.
Next Sunday, Russia is also due to meet with members of the OPEC+ group like Saudi Arabia to discuss production policy, setting up a critical week for the oil market.
Saudi-led OPEC was accused last month by the White House of siding with Russia after it collectively agreed to cut oil production to support prices.
Brent was trading at around £120 a barrel in June, but oil fell as Western countries released emergency stocks into the market as traders bet the expected recession will dampen demand for oil.
The commission declined to comment.
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