G7 and allies hit snag over setting price cap on Russian oil.
Talks to finalize a cap on the price of Russian oil long in the works by the United States and pro-Ukraine allies faced a setback Wednesday as a meeting of senior European Union diplomats over the exact price and other details ended without agreement.
The plan is close to being finalized and must be in place before an E.U. embargo on Russian oil imports kicks in on Dec. 5.
E.U. diplomats from all 27 member states met throughout the day and into the evening Wednesday to iron out the final details, including, crucially, at what price the cap should be set.
They were not able to reach agreement because their views on where exactly the price should be set were too far apart, and some countries asked for additional changes to the policy. It was not immediately clear when they would reconvene to pick up negotiations.
At stake is a complicated, fraught effort among Ukraine’s allies to limit the Kremlin’s revenues from oil exports while averting a shortage of the fuel, which would force prices up and compound a cost-of-living crisis around world.
The E.U. ambassadors representing the 27 nations that make up the bloc have been asked to set a price between $65 and $70 per barrel, and to approve soft-touch enforcement methods.
The benchmark for the price of Russian oil, known as the Urals blend, traded between $60 and $70 per barrel in the year before the pandemic. It rose as high as $100 per barrel shortly after Russia’s invasion of Ukraine in February, but over the past three months has settled between $65 and $75 per barrel. This week, it has traded at the lower end of that range.
A senior Treasury official said on Tuesday that the coalition was expected to announce the price in the coming days and the United States suggested that it was not trying to influence European Union negotiations about the price. The price is likely to change over time, the official said, based on regular reviews that take into account changing market conditions.
Despite the delays in determining a price, G7 countries have been trying to prepare participants in the energy markets for how the price cap will work. It will place the burden of implementing and policing the cap on the businesses that help sell the oil: global shipping and insurance companies, which are mostly based in Europe. Most tankers transporting Russian oil are Greek-owned, according to maritime data; London, the British capital, is home to the world’s biggest maritime insurance companies.
On Tuesday, the Treasury Department released new guidance explaining that Russian oil that had been sold under the cap but was then “substantially transformed” or refined outside of Russia would no longer be subject to the sanctions. It also provides a “safe harbor” provision that protects insurers and other financial service providers from liability if they violate sanctions based on falsified information about the price of oil in shipping transactions.
Some E.U. diplomats, especially those from Poland and other staunch Ukraine allies, said that the price range proposed by G7 was too high and that the cap should be set much lower in order to hurt Russian revenues, several E.U. diplomats directly involved in, or briefed on, the talks said.
Greece, Cyprus and Malta, which have serious stakes in the policy because of their large maritime industries, asked for an even higher cap — which would actually have put the price above current trading levels — and some even sought compensation for possible loss of income for their maritime businesses.
France, Germany and Italy, the three E.U. nations that are members of the Group of seven industrialized countries driving the Russian oil price cap, argued in favor of the price range presented and the softer enforcement mechanisms, advocating the U.S. position that those were necessary to avert a supply crunch.
Russia has said it will not comply with a formal price cap; setting it around the current market price would permit it to save face and continue to export.
The European Union embargo on Russian oil that kicks in on Dec. 5 also includes a ban on European services to ship, finance or insure Russian oil shipments to destinations outside the bloc, a measure that would disable the infrastructure that moves Russia’s oil to buyers around the world.
To implement the price cap, these European shipping providers will instead be permitted to transport Russian crude outside the bloc only if the shipment complies with the price cap. In other words, it will be left up to them to ensure that the Russian oil they are transporting or insuring has been sold at or below the capped price; otherwise, they would be held legally liable for violating sanctions.