The G7 and its allies come up against the setting of a price cap on Russian oil

Talks to put a cap on the price of Russian oil long underway by the United States and pro-Ukrainian allies suffered a setback on Wednesday as a meeting of senior European Union diplomats on the exact price and other details ended without agreement.

The plan is nearing completion and must be put in place before an EU embargo on imports of Russian oil takes effect on December 5.

EU diplomats from the 27 member states met on Wednesday evening to work out the final details, including, crucially, at what price the cap should be set.

They were unable to reach an agreement because their views on exactly where the price should be set were too far apart, and some countries requested further changes to the policy. It was not immediately clear when they would meet again to resume negotiations.

At stake is a convoluted and difficult effort among Ukraine’s allies to limit Kremlin revenue from oil exports while avoiding a fuel shortage, which would drive up prices and deepen a cost of living crisis. in the world.

EU ambassadors representing the 27 countries that make up the bloc have been asked to set a price between $65 and $70 a barrel and endorse soft application methods.

The benchmark for the price of Russian oil, known as the Urals blend, traded between $60 and $70 a barrel the year before the pandemic. It hit $100 a barrel shortly after Russia invaded Ukraine in February, but over the past three months has been between $65 and $75 a barrel. This week, it traded at the lower end of that range.

A senior Treasury official said on Tuesday the coalition was expected to announce the price in the coming days, and the United States suggested it was not trying to influence European Union negotiations over 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 delays in determining a price, G7 countries have attempted to prepare energy market players for how price caps work. This will put the burden of implementing and controlling the cap on the companies that help sell the oil: the global transport and insurance companies, which are mainly based in Europe. Most tankers carrying Russian oil belong to Greece, maritime data shows; London is home to the largest marine insurance companies in the world.

On Tuesday, the Treasury Department issued new guidance explaining that Russian oil that had been sold below the cap but then “substantially processed” or refined outside of Russia would no longer be subject to the sanctions. It also includes a “safe harbour” provision that protects insurers and other financial service providers from liability if they violate penalties based on falsified oil price information in maritime transactions.

Some EU diplomats, particularly those from Poland and other staunch allies of Ukraine, have said that the price range proposed by the G7 is too high and that the ceiling should be set much lower in order to harm to Russian revenues, several EU diplomats directly involved or briefed on the talks said.

Greece, Cyprus and Malta, which have serious interests in politics due to their large maritime industries, have called for an even higher cap – which would have effectively put the price above current commercial levels – and some have even asked for compensation for a possible loss of income for their maritime activities.

France, Germany and Italy, the three EU countries that are members of the Group of 7 industrialized countries that lead the Russian oil price cap, argued in favor of the price range presented and the mechanisms of more flexible application, defending the American position that these were necessary to avoid a shortage of supply.

Russia said it would not adhere to a formal price cap; Setting it around the current market price would allow it to save face and continue exporting.

The European Union’s embargo on Russian oil which comes into force on December 5 also includes a ban on European services from shipping, financing or insuring shipments of Russian oil to destinations outside the bloc, a measure that would disable the infrastructure that transports Russian oil to buyers. the world.

Under the price cap, these European carriers would instead be allowed to transport Russian crude out of the bloc only if the shipment met the cap. In other words, it would be up to them to ensure that the Russian oil they were transporting or insuring had been sold at or below the ceiling price; otherwise, they would be held legally responsible for breaching the sanctions.