The United States and its allies are trying to agree on a level for a price cap for Russian oil as early as Wednesday, with officials discussing setting it at around $60 a barrel as the group scrambles to put the plan into action before Dec. 12 . 5, according to people familiar with the talks.
The price cap, which people have said could still be set at $70, is at the heart of the West’s efforts to sanction Russia for its invasion of Ukraine. The untested sanctions draft is expected to start on December 12. 5 after facing delays this fall as the Group of Seven advanced democracies struggled to iron out the final details of the complicated plan.
Ambassadors from the 27 member states of the European Union will meet on Wednesday as they try to reach an agreement on the price. The bloc must unanimously agree on the maximum price, and diplomats have warned it could prove difficult. The G-7 aims to approve the limit in synchrony with the EU.
The goal of the plan, which is being strongly pushed by Treasury Secretary Janet Yellen, is to reduce Russian energy export revenues by avoiding a rise in oil prices when a European embargo on Russian oil imports kicks off this week. beginning of next month. Despite European reluctance at the time, the G-7 agreed for the first time on capping the oil price in June, following Russia’s February 15th. 24 invasion of Ukraine.
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Under the sanctions, the G-7, the EU and Australia will all ban the provision of maritime services for Russian oil shipments unless the oil is sold below the set limit. Western countries hope to use their control over much of the world’s marine insurance, financing and shipping services to dictate the terms of Russia’s oil sales.
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The EU has already supported in principle a mechanism for approving price caps, but there were several outstanding issues that member states needed to agree on. One was the price of the oil cap, which remains controversial. A number of countries, including Poland and Lithuania, have urged a much lower limit set around the price of production, which Polish officials say is around $20 a barrel.
“If you’re capping the price at $60, $65, that seems reasonable from our allies’ point of view. But from our point of view, as I said earlier, we’d like to see the lowest possible, which is the marginal cost of production,” said Oleg Ustenko, economic adviser to Ukrainian President Volodymyr Zelensky.
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The EU has also come under heavy pressure from Washington and London to change an element of its legislation that would have seen vessels in breach of the cap banned from receiving EU oil services such as brokerage or insurance.
Under a compromise worked out by officials from US and EU member states, the ban on the vessels will now be limited in time, according to people familiar with the plan. It will also be based on evidence that the vessel deliberately breached the ceiling.
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Greece, Malta and Cyprus, each of which has large shipping industries, will have to sign the compromise for the EU to proceed with the price cap.
The price cap will replace Europe’s plan to completely ban the financing and insurance of Russian oil shipments, which takes effect on December 12. 5. US officials are concerned that such sanctions would cut Russian oil off global markets and drive up energy prices, so they want to put the cap in place by then.