BRUSSELS (AP) – The European Union was closing in on setting a price cap of $60 a barrel for Russian oil – a long-awaited and complex political and economic maneuver designed to keep Russia supplied to world markets while limiting President Vladimir Putin’s ability to fund his war in Ukraine.
EU countries sought to push the ceiling across the finish line after Poland resisted to get as low a figure as possible, diplomats said on Thursday. “Still waiting for white smoke from Warsaw,” said an EU diplomat, who spoke on condition of anonymity as talks were still ongoing.
The latest offer, confirmed by 3 EU diplomats, comes ahead of a deadline to set the price of cut-price oil by Monday, when a European embargo on Russian crude transported by sea and a ban on shipping insurance for these supplies comes into effect. The diplomats also spoke on condition of anonymity as the legal process had still not been completed.
The $60 figure would signify a ceiling close to the current price of Russian crude, which this week fell below $60 a barrel, and aims to prevent a sudden loss of Russian oil. in the world following the new Western sanctions. That’s a big discount to international benchmark Brent, which traded at around $87 a barrel on Thursday, but could be high enough for Moscow to keep selling even rejecting the idea of a cap.
When the final number is in place, a new buyer cartel – which should consist of formal and informal members – will emerge. Western allies of the Group of Seven industrial powers have led the price cap effort and still need to approve the figure.
A coalition official, who was not authorized to comment publicly and spoke on condition of anonymity, expressed optimism that a deal could be reached as early as Friday, but warned negotiations would continue potentially the weekend or maybe even Monday.
The official added that putting the price cap in place would help end the war sooner. On the other hand, the official said not implementing it would be “a victory for Russia”.
Oil is the main pillar of the Kremlin’s financial income and kept the Russian economy afloat despite export bans, sanctions and central bank asset freezes that began with the February invasion. Russia exports about 5 million barrels of oil per day.
The risks of failure of the price cap are immense for the world’s oil supply. If it fails or if Russia retaliates by stopping the export of oil, energy prices around the world could skyrocket. Putin said he would not sell oil below a price cap and would retaliate against countries that enforce the measure.
U.S. and European consumers could feel the ramifications of more gasoline price spikesand people in developing countries may face higher levels of food insecurity.
With the EU and UK banning insurance for Russian oil shipments, the price cap allows companies to continue insuring tankers to non-EU countries as long as the price of oil is equal or lower than the ceiling. This would avoid a price spike due to the loss of supply from the world’s second-largest oil producer and cap Russia’s oil revenues near current levels.
The Treasury Department has issued guidelines to help businesses and marine insurers understand how to meet the price capclaiming that the price cap could fluctuate depending on market conditions.
Robin Brooks, chief economist at the Institute of International Finance in Washington, said the cap should have been put in place earlier this year when oil hovered around $120 a barrel.
“Since then oil prices have obviously fallen and the global recession is a reality,” he said. “The reality is that it is unlikely to be binding given the current oil price situation.”
Critics of the price cap measure, including former Treasury Secretary Steve Mnuchin, called the plan “ridiculous”.
Mnuchin told CNBC during a November panel at the Milken Institute’s Middle East and Africa Summit that the price cap was “not only impossible, but I think it’s the most ridiculous idea I’ve ever heard”.
Rachel Ziemba, deputy principal researcher at the Center for a New American Security, said that if the worst-case scenario envisioned Russia cutting off global oil supplies, “the Saudis and the Emiratis would ramp up production.”
“Russia has made it clear that countries that meet the cap will not receive their oil and this could also lead to reductions in natural gas exports,” she said. “It will be an interesting couple of weeks and months.”
Hussein reported from Washington. AP writer Aamer Madhani in Washington and economics writer David McHugh contributed from Frankfurt, Germany.
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