Brussels is rushing to finish the proposed price cap on Russian oil shipments in the next few days. This is because EU governments disagreed about the level of the cap and whether or not it should be tied to a wider set of sanctions.
The EU was having trouble settling its differences over the weekend as it tries to stay ahead of a December 5 deadline. On that day, a previously agreed-upon EU embargo on Russian oil shipped by sea goes into effect. In the last few days, talks have stalled because Poland is pushing for a much lower price ceiling than the European Commission wants.
Brussels has been negotiating with the G7 nations to put the planned price limitation on seaborne Russian oil into effect, with the purpose of keeping the product flowing while limiting Moscow’s ability to pay for its conflict in Ukraine.
The idea would prohibit the sale of insurance and other services required for the seaborne shipment of Russian crude at or below a G7-agreed-upon pricing threshold.
While EU member states are likely to sign on to the bill, they disagree on how high the cap should be. “This is a time when we need to send unambiguous messages of unity to Vladimir Putin,” one EU ambassador said, criticizing Poland’s choice to demand a low price ceiling. “This problem must be resolved well before December 5th.”
The commission wants a maximum price of $65 per barrel, but hawkish member states, led by Poland, say this wouldn’t work because it’s too close to the price Russia already gets on the market. This means the sanction wouldn’t hurt the Kremlin.
Brent crude, the international standard, is selling for about $84 a barrel, but Russia’s main Urals grade is now selling for about $66 a barrel because European buyers have stopped buying it.
Warsaw has been asking for a much lower price, saying that it is needed to cut Putin’s oil income. On Sunday, a Polish official said that the government supports the price cap in general, but that $65 is “extremely high” compared to the cost of production in Russia.
The commission wants a maximum price of $65 per barrel, but hawkish member states, led by Poland, say this wouldn’t work because it’s too close to the price Russia already gets on the market. This means the sanction wouldn’t hurt the Kremlin.
Brent crude, the international standard, is selling for about $84 a barrel, but Russia’s main Urals grade is now selling for about $66 a barrel because European buyers have stopped buying it.
Warsaw has been asking for a much lower price, saying that it is needed to cut Putin’s oil income. On Sunday, a Polish official said that the government supports the price cap in general, but that $65 is “extremely high” compared to the cost of production in Russia.
Analysts worry that if the price cap is set too low, Russia may lose the incentive to keep producing, preferring instead to reduce output in order to drive up world prices to compensate.
Moscow has repeatedly stated that it will not sell to any countries that use the cap, but the Biden administration hopes that countries such as China, India, and Turkey, which are expected to absorb Russian cargoes barred from Europe, will be able to use the cap’s existence to help negotiate lower-priced deals.
Even if the quota is lifted, EU countries will be unable to purchase Russian oil shipments since the new sanctions against seaborne imports will remain in effect.
According to Reuters, Ukrainian President Volodymyr Zelenskyy added his voice to the price cap debate on Saturday, saying that the cost of Russian seaborne oil should be restricted to $30-$40 per barrel.
The implementation of the oil price cap will necessitate not just action by the G7 allies, but also unanimous agreement among the 27 EU member states because it will entail altering the previously agreed-upon EU embargo on Russian seaborne oil, which begins on December 5.
Russia is also scheduled to meet with members of the Opec+ group, including Saudi Arabia, on Sunday to discuss production policy, setting up a pivotal week for the oil market. The White House accused Saudi Arabia-led Opec last month of siding with Russia after they decided to cut oil supply to support prices.
Brent was trading around £120 per barrel in June, but oil sank as western governments released emergency inventories into the market, and traders bet that the expected recession would limit oil consumption.
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