EU meets to impose price cap on Russian oil

Brussels is co-ordinating its efforts with the G7

The tanker Vladimir Arsenyev at Kozmino oil terminal on the shore of Nakhodka Bay near the port city of Nakhodka near Vladivostock. Reuters
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EU ambassadors on Wednesday examined a sanction proposal to cap prices of Russian oil exports but it is unclear if there will be agreement. Discussions are expected to extend into Wednesday evening.

A consensus among EU representatives in Brussels would lead to a joint announcement with the G7 — Canada, France, Germany, Italy, Japan, the UK and the US.

The G7 in September announced that it had agreed to impose a cap on Russian oil prices in an effort to limit its revenues and hinder its ability to wage war in Ukraine.

The European Commission has been working on a consensus between the bloc’s 27 member countries to finalise the level of the price cap and put it into effect in collaboration with the G7.

The US expects the EU to take a final decision this week.

Sources in Brussels said that there were no expectations for a decision to be made on Wednesday. The cap could be discussed on Thursday, when EU energy ministers will meet in the Belgian capital to discuss prices.

An EU diplomat told Reuters that views within the EU were split as member states examined the G7 proposal to set the cap between $65 and $70 a barrel.

“Poland, Lithuania and Estonia consider this too high because they want the price set at the cost of production, while Cyprus, Greece and Malta find it too low, because of the risk of more deflagging of their vessels, which might mean the G7 has found a good middle ground,” the diplomat said.

Production costs are estimated at about $20 a barrel.

The cap is to come into force alongside the EU’s sixth batch of sanctions on Moscow adopted in June that ban all imports of Russian seaborne crude oil and petroleum products starting on December 5.

In parallel, a G7 plan will allow shipping services providers to help export Russian oil but only at enforced low prices. Some 70 per cent to 85 per cent of Russia's crude exports are carried by tankers rather than pipelines.

Provisions for refined petroleum products, including a cap on those prices, are scheduled to take effect in February.

A US official on Tuesday said that Washington does not expect Russia to retaliate by withholding oil exports, as Russian President Vladimir Putin has said would happen. Such a move could send global oil prices higher, but risks damaging Russian oilfields.

EU countries have proposed adding a 45-day transition to the introduction of the cap, according to Bloomberg.

The proposed grace period would apply to oil loaded before December 5 and unloaded by January 19, aligning the EU with a clause announced by the US and the UK.

The EU is also proposing a 90-day transition in the event of any changes to the level of the price cap.

Updated: November 23, 2022, 1:35 PM