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EU is rushing to resolve disagreements over the cap on Russian oil prices

Following disagreements between EU governments over the level of the cap and whether to tie it to a broader round of penalties, Brussels is rushing to finalize the proposed price ceiling on Russian oil shipments in the coming days.

As it tries to remain ahead of a December 5 deadline, when an earlier agreed EU embargo on seaborne Russian oil kicks in, the EU was unable to resolve its disagreements over the weekend. Recent days have seen a stalemate in negotiations as Poland has taken the lead in advocating for a much lower price ceiling than the European Commission does.


Brussels has been collaborating with the G7 countries to put the planned price cap on seaborne Russian oil into effect. The aim is to maintain the flow of the product while limiting Moscow's ability to pay for its conflict in Ukraine.


Unless sold at or below a G7-agreed price threshold, the effort would prohibit insurance and other services necessary for the seaborne shipment of Russian crude.


However, despite their willingness to support the proposal, EU member states have different views on the size of the cap. One EU ambassador criticized Poland's choice to insist on a low price ceiling, saying, "This is a moment when we need to send clear signals of unity to Vladimir Putin. This issue needs to be sorted out well before the fifth of December."

The commission is advocating a maximum price of $65 a barrel, but hawkish member states led by Poland claim that this would be useless since it is too close to the price that Russia now receives on the market, meaning the sanction would not punish the Kremlin.


The international benchmark, Brent crude, is currently trading at approximately $84 per barrel, but due to a lack of interest from European consumers, Russia's oil has dropped to a sharp discount, with its flagship Urals grade trading at roughly $66 per barrel.


In order to ensure Putin's oil income are limited, Warsaw has been requesting a considerably lower price. According to a Polish official, the government accepts the price cap in theory but deems the $65 mark to be "extremely high" in comparison to Russia's cost of manufacturing.


According to the insider, Warsaw also wants to include the oil price restriction in a larger ninth package of EU penalties against Russia, but the commission is concerned that this might further stymie negotiations. Poland and other nations are wrangling over a price level review system as well.


Other EU members, notably those with significant shipping industries like Greece, Malta, and Cyprus, want to make sure that the price is high enough to maintain the flow of commerce in Russian oil, and the US is likely to support their position.


Since too much Russian oil would be prevented from reaching the market by EU sanctions, the US Treasury has taken the lead in pushing for the introduction of the G7 price restriction.


Analysts contend that if the price limit level is set too low, Russia may lose its incentive to continue producing and may instead choose to reduce output in order to raise global prices as compensation.


Moscow has repeatedly stated that it will not do business with any nations that are using the cap, but the Biden administration is hopeful that nations like China, India, and Turkey — which are anticipated to take in Russian cargoes that are prohibited from entering Europe — will be able to use the cap's existence to their advantage in negotiating more favorable terms.


Even under the quota, EU nations will not be permitted to purchase Russian oil shipments because the new sanctions prohibiting imports by sea will still apply.


In a news conference on Saturday, the president of Ukraine, Volodymyr Zelenskyy, offered his support to the price cap argument by stating that the price of Russian seaborne oil should be capped at $30 to $40 per barrel, according to Reuters.


Because it involves changing the already-agreed EU embargo on Russian seaborne oil that begins on December 5, implementing the oil price cap will necessitate action not only from the G7 allies but also from all 27 EU member states.


A crucial week for the oil market will begin next Sunday when Russia meets with members of the Opec+ group like Saudi Arabia to discuss production policies.


The White House charged Opec, which is chaired by Saudi Arabia, with siding with Russia last month after they collectively decided to cut oil production to support prices.


In June, Brent was trading at around £120 a barrel. However, oil prices dropped as western nations put emergency inventories into the market and traders wagered that the upcoming recession will reduce oil consumption.


The commission chose not to respond.

By fLEXI tEAM


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