The European Union has hit an impasse over a proposed price cap on Russian crude oil, despite a key deadline drawing near and US pressure looming large.
Following several rounds of behind-the-scenes negotiations, EU countries have been unable to agree on a specific price cap, which will directly affect the maritime trade of Russian oil around the world.
The cap builds upon an unprecedented initiative by the Group of Seven (G7) that aims to further weaken the Kremlin’s financial ability to wage war on Ukraine.
Under the plan, Russia will lose the difference between the commercial price of its Urals crude and the capped price imposed by the West.
The G7, the EU and Australia will prohibit their banking, insurance, flagging and shipping firms from working with Russian companies that sell crude oil at a price that exceeds the agreed-upon cap.
The West holds a dominant market position in these services and believes Russia will not be able to fully replace them if it refuses to comply with the price cap.
The EU needs to unanimously agree on a concrete price range before the G7 gives the final endorsement.
Price cap range discussed
The latest proposal in Brussels is a cap of $62 (€59) per Russian oil barrel, slightly down from the $65 that was discussed last week, diplomats with knowledge of the situation told Euronews.
Russia, however, is already selling its Urals crude oil at a discounted price, which has recently ranged between $80 and $65 per barrel – about $20 cheaper than the benchmark Brent crude oil.
Greece, Cyprus and Malta, three coastal EU countries that play a key role in the maritime trade of Russian oil, initially pushed for a cap of $70 (€67) per barrel, which was deemed too close to Russia’s selling point, several diplomats told Euronews.
Greece has the world’s largest fleet of oil tankers, many of which carry Russian oil around the world, and is keen on preserving the long-established business.
Meanwhile, Poland and the three Baltic states have adopted a hard-line position and demand a more stringent cap in order to deprive Russia of a larger share of its profit.
As a starting point, this group called for a cap of $30 (€29) per barrel, a proposal that was seen as unrealistic and unworkable by a majority of EU countries.
The International Monetary Fund (IMF) estimated last year the break-even price of Russian oil was between $30 and $40 per barrel, which entirely covers production and extraction costs.
“We are still of the opinion the price should be somewhat below ($62 per barrel), closer to Russian production costs and next year’s budget calculations,” one diplomat told Euronews, speaking on condition of anonymity, as the discussions are ongoing.
“We are not too radical about a strict price, but it should be lower,” said another diplomat who defends a harsher cap. “Every single dollar is going into the Ukraine war.”
While officials say talks have made some progress in the last few days, an ambassadors meeting on Monday evening failed to deliver the necessary breakthrough, as differences remained too wide.
“Poles are completely uncompromising on the price, without suggesting an acceptable alternative,” another diplomat told Euronews, noting the concessions made by the three Mediterranean countries.
A looming deadline
It was not immediately clear when a new round of talks would take place in Brussels, although Wednesday, rather than Tuesday, appeared to be the most feasible option.
The Czech Republic, the current holder of the EU Council’s rotating presidency, is moderating the discussions.
Besides the price range itself, the debate is focused on the question of enforcement.
The clock is ticking for the EU: the price cap needs to be agreed upon before 5 December, which marks the final deadline for member states to phase out all imports of Russian seaborne crude.
Two months later, on 5 February, they will be compelled to do away with all refined petroleum products.
The EU’s own embargo introduced a total prohibition on European companies to provide insurance, banking and shipping services to any Russian oil tanker.
This provision will be softened to allow the servicing of Russian companies that respect the G7 cap.
While the EU ban has strong domestic implications, the G7 initiative is poised to reverberate across global markets, as many countries remain dependent on Russian oil to sustain their economies.
Officials in Brussels admit the cap has to tangibly hurt Russia but also allow it to reap a minimum level of profits so that the country keeps trading its products around the world.
There is also concern the measure could trigger an abrupt spike in oil prices, cause international backlash and alienate Asian and African countries against the West.
The price cap will not be permanently fixed and will be regularly revised according to market trends.
The amount chosen by the G7 and the EU will determine the financial pain inflicted on the Kremlin: the sale of fossil fuels is Russia’s main source of revenue, representing over 40% of its federal budget.
From the start of the war on 24 February to 18 November, Russia earned €109 billion from sales of crude oil and €36 billion from oil products and chemicals, according to numbers provided to Euronews by the Centre for Research on Energy and Clean Air (CREA), a Helsinki-based organisation that tracks Russia’s energy exports.
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