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G7 and Allies Hit Snag Over Setting Price Cap on Russian Oil


Negotiations to finalize a ceiling on Russian oil prices being discussed by the United States and its pro-Ukrainian allies faced setbacks on Wednesday at a meeting of senior Union diplomats Europe on exact prices and other details ended without agreement.

The plan is nearing completion and must be implemented before the EU embargo on Russian oil imports takes effect on December 5.

EU diplomats from all 27 member states met throughout the day and until Wednesday night to work out the final details, including, mainly, the price ceiling that should be fixed.

They were unable to reach an agreement because their views on the exact rates that should be set were too different and several countries requested additional policy changes. It is not clear when they will convene again to begin negotiations.

At stake is a complicated and difficult effort among Ukraine’s allies to limit the Kremlin’s revenue from oil exports while preventing fuel shortages, which would drive prices up and cause damage. worldwide cost of living crisis.

EU ambassadors representing the 27 countries that make up the bloc have been asked to set prices between $65 and $70 a barrel and approve gentle enforcement methods.

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

A senior Treasury official said on Tuesday that the union was expected to announce prices in the coming days, and the United States hinted it was not trying to influence the Union’s negotiations. Europe on price. The official said prices are subject to change over time, based on regular assessments that take into account changing market conditions.

Despite the delay in pricing, the G7 countries have managed to prepare energy market participants for how the price cap works. It will place limited enforcement and control burdens on the businesses that help sell oil: global shipping and insurance companies, most of which are based in Europe. According to maritime data, most Russian oil tankers are Greek-owned; London, the capital of England, is home to the world’s largest marine insurance companies.

On Tuesday, the Treasury Department released new guidance explaining that Russian oil that has been sold below the limit but has subsequently been “significantly modified” or refined outside Russia will no longer be subject to the order. punishment. It also provides a “safe harbor” provision to protect insurers and other financial service providers from liability if they breach sanctions based on misinformation. difference in oil prices in transportation transactions.

Some EU diplomats, especially those from Poland and other staunch allies of Ukraine, say the price level proposed by the G7 is too high and the ceiling should be set much lower to hurt the EU. Russian revenue, a number of EU diplomats directly participated or informed. above, the negotiations said.

Greece, Cyprus and Malta, countries with serious policy interests because of their large maritime industries, have demanded an even higher ceiling – which would actually push prices higher than the transaction level. now – and some are even seeking compensation for the possible loss of income to their maritime business.

France, Germany and Italy, three EU countries that are members of the Group of Seven industrialized countries driving Russian oil prices, argued in favor of the proposed price range and softer enforcement mechanisms, supporting the view that of the United States that are necessary to prevent a supply crisis.

Russia said it would not comply with the official price ceiling; placing it around the current market price will allow it to save face and continue to export.

The European Union embargo on Russian oil, effective December 5, also includes a ban on European services that transport, finance or insure Russian oil shipments to destinations. to outside the bloc, a measure that would disable Russia’s oil transportation infrastructure to surrounding buyers. world.

To implement a price cap, these European shipping providers will instead be allowed to ship Russian crude outside the bloc only if the shipment complies with the price cap. In other words, they would be tasked with ensuring that the Russian oil they were transporting or insuring was sold at or below the ceiling price; otherwise, they will be held liable if they violate the sanctions.

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