By Alexandra Brzozowski and Kira Taylor
EU member states are running out of time to agree on a price cap for shipments of Russian crude oil after another round of last-ditch talks between the bloc’s ambassadors on Monday evening (28 November) ended without a deal.
The EU is set to ban almost all Russian oil imports into the bloc on 5 December, which is meant to be combined with an international price cap on shipments, but just days away from these coming into force, member states are struggling to agree on the potential cap.
“There is no deal. The legal texts have now been agreed, but Poland still can’t agree to the price,” one EU diplomat said.
Brussels has been working with G7 countries to implement the price ceiling on seaborne Russian oil, with them proposing to cap it at $65-70 a barrel.
The goal is to allow oil to continue flowing while simultaneously pushing down Moscow’s ability to fund its war in Ukraine. Under the plan, cargoes of Russian oil would have to sell at or below the cap or risk being banned from shipping insurance and reinsurance.
Unlike the gas price cap currently being negotiated by EU countries, the price cap on oil would only be applied to Russian supplies, and it would come as another sanction in the wake of Russia’s invasion of Ukraine.
In Monday’s talks, EU ambassadors debated whether to set the cap as low as $62 per barrel on exports of Russian crude oil. However, several EU diplomats said consensus remains elusive, with some countries wanting to go much lower.
“The Poles are completely uncompromising on the price without suggesting an acceptable alternative,” one EU diplomat said.
Hawkish member states led by Warsaw say this will be ineffective because it is too close to the price Russia already gets on the market, meaning the sanction would not punish the Kremlin enough to cripple its war economy.
Poland, together with Lithuania and Estonia, is pushing for a significantly lower cap of around $30 and wants the implementation of the cap to be tied to the promise of the next ninth sanctions package against Russia.
“There are three elements which still need to be discussed: criteria of the price cap adjusting, the inclusion of a mechanism to the new package of sanctions, and the level of cap price,” a CEE diplomat told EURACTIV.
Russia’s oil and gas exports are forecast to account for 42% of the country’s revenues this year at 11.7 trillion roubles, up from 36% or 9.1 trillion roubles in 2021, according to Reuters, citing the country’s finance ministry.
Ukraine’s President Volodymyr Zelenskyy said on Saturday (26 November) the cost of Russian seaborne oil should be capped at $30-$40 a barrel, Reuters said.
Other price cap sceptics, meanwhile, have already given ground.
EU member states, including those with big shipping industries such as Greece, Malta, and Cyprus, had wanted to ensure the price is sufficiently high to keep trade in Russian oil flowing, a position likely to be supported by the US.
These shipping countries’ concerns were “squared off” in Monday’s talks, EU diplomats said, adding that pressure is now expected to mount on the hawkish member states to compromise.
“France, Germany, and a few others are quite critical of Poland, they say: The Meds have come quite a way in compromising, now it’s time to reciprocate,” a second EU diplomat said.
A new date for talks is yet to be set, EU diplomats said, even though the price cap mechanism is due to enter into force on 5 December. Expectations in Brussels are that negotiations could be concluded by the end of this week.
After several weeks of drawn-out negotiations in May, EU leaders agreed to a partial embargo on crude oil imports by sea, which will take full effect by the end of 2022.
Hungary, Slovakia, and the Czech Republic then secured exemptions from the ban for the pipeline imports they rely on.
If there is no agreement on the G7 price cap idea by next Monday, the bloc will need to implement the harsher measures agreed upon at the end of May, which would include a ban on all Russian crude oil imports from 5 December and on petroleum products from 5 February, some EU diplomats warned.
It also remains unclear at this stage whether there would need to be additional adjustment talks at the G7 level if the EU agrees a cap outside of the group’s proposed price range.
How the cap would work
When implemented, the price would apply to any ship carrying Russian oil, no matter what flag it flies.
Shipping companies would only be allowed to transport oil sold below or at the level of the agreed cap.
If a ship is found to be carrying Russian oil and not adhering to the set cap, it will lose access to services like insurance.
While the question about whether proper monitoring can be ensured remains, the EU aims to team up with key countries for maritime insurance, like the UK, to give the sanction teeth.