European Union states are starting to coalesce around a plan to cap the price of Russian crude oil at $60 a barrel, their latest attempt to clinch an agreement before a Monday deadline, according to people familiar with the matter.
The bloc is also looking at a mechanism that would allow for regular evaluations and potential revisions of the price every two months from mid-January 2023, the people added. Two of the people said that there should be an agreement that any future resetting of the cap should leave it at least 5% below average market rates. They didn’t go into detail.
EU talks on the level at which to cap Russian oil have been stuck since last week. Poland and the Baltic nations have demanded a price that puts more pressure on Moscow’s revenues, arguing that earlier proposals — which had gone as low as $62 — were too generous. Greece and other shipping countries have angled for a higher price.
EU governments had until 4 p.m. Brussels time on Thursday to raise objections to the latest proposals on the table.
The $60 figure would still be higher than where Russia’s flagship barrels now trade. The country’s Urals grade plunged this month to just $50 a barrel at the nation’s key western export terminals in the Baltic and Black Sea, according to Argus Media, one of the market’s preeminent pricing companies.
The aim of the price cap – first proposed by the US amid concern EU sanctions were too strict – is to keep Russian oil flowing to avoid a global price spike, while also limiting Moscow’s revenue.
It’s not clear whether all the nations in the two groups will back $60 but most are supportive if the level is coupled with other demands being met, Bloomberg reported on Wednesday. Ambassadors were due to discuss the latest proposals at a meeting on Thursday the people said.
Poland and the Baltic countries have in parallel asked for firmer progress on a new package of EU sanctions. Clarity on those measures is expected over the next few days and the EU’s executive arm this week also presented proposals to tackle the circumvention of sanctions, use frozen assets and hold Russia accountable for its war of aggression against Ukraine.
The $60 figure has yet to be agreed by the bloc at large and discussions are ongoing, the people said. Any agreement at EU level would require the backing of all member states, as well as the support of the Group of Seven. One of the people said the $60 figure would fit within the G-7’s range.
For the price cap plan to accomplish the US goal of stabilizing global oil prices, the level has to be attractive enough to the Kremlin. If it’s above the market rate, Russia and its buyers can argue it’s simply business as usual. The risk for oil markets is that if the cap is set too low, Moscow may make good on a threat to shut down production — sending global oil prices higher.
Both sets of EU holdouts also want the cap to include a review mechanism. Greece, Malta and Cyprus had separately been seeking guarantees that the shipping industry won’t be discriminated against by international competitors as a result of the cap.
G-7 countries are aiming to put the price cap in place before Monday, when wider EU sanctions on oil are due to come into force. The cap plan would ban shipping and services needed to transport Russian oil, such as brokering, financial assistance and insurance, unless the cargoes are purchased below the agreed price threshold.
Most G-7 nations will stop importing Russian crude later this year. Similar restrictions, including a price cap, for other petroleum products are due in February.
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