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EU talks on fresh Russian oil price caps go to the wire

EU talks on fresh Russian oil price caps go to the wire

Ambassadors to meet again on Friday as Sunday deadline looms.
EU countries failed to strike a deal on a price cap for Russian oil products, with a deadline for settling the price now just days away.

Talks between EU ambassadors that were due to resume on Thursday have now been postponed until Friday while diplomats seek a compromise, six EU diplomats said. The European Commission last week proposed that — as part of a G7 coalition — the EU should enforce a price cap of $100 per barrel on products like diesel which trade above the price of crude oil and $45 for those that trade at a discount to crude.

But Poland and the three Baltic countries have pushed for lower caps and for the existing G7 price cap on Russian crude oil to be lowered from the current $60 per barrel. Russia's Urals export blend crude oil has been trading at between $46 and $52 per barrel in January. The more hawkish EU countries want to drive down the crude cap to between $40 and $50 to curb the fossil fuel revenues that fund Vladimir Putin's war on Ukraine. Diesel currently trades at around $120 to $130 per barrel.

An EU-wide ban on Russian oil products — those from crude oil, such as diesel, gasoline and jet fuel — comes into force this Sunday, February 5, presenting a hard deadline for agreement.

The G7 coalition price cap is due to come into force at the same time so that Western shipping firms and insurance companies can continue facilitating Russian oil exports sold at or below the cap level. The EU ban and the G7 caps are intended to work in parallel to trim Russia’s income while avoiding a major shock to global energy markets.

No progress was achieved at a meeting of EU ambassadors on Wednesday, which also discussed a new EU sanctions package on Russia’s ally Belarus. Three EU diplomats said that hawkish countries, spearheaded by Lithuania, are also pushing back against exemptions within the Belarus sanctions package for fertilizer, inserted to reflect other countries’ concerns about global food security.

The European Commission will now continue deliberations behind closed doors, with a view to finally striking a deal at the next meeting of ambassadors on Friday. Similar last-minute disagreements took place late last year over the price cap on Russian crude oil, with an original proposal of $65 to $70 per barrel being cut to $60 following opposition from Poland and Baltic countries.

“We trust that an agreement will be reached before February 5,” one EU diplomat said. A second diplomat said, meanwhile, that the bigger EU countries were becoming “fed up with the moral blackmail” of the hawkish coalition.

The EU’s ban on Russian diesel had led to fears of a supply crunch, but significant increases in imports in recent weeks have eased those concerns for now.

Some commentators have criticized the proposed cap levels for oil products.

Lauri Myllyvirta, lead analyst at the Centre for Research on Energy and Clean Air, said the caps were too high to have a significant impact.

“This really represents window dressing by EU countries,” Myllyvirta said. “The aim must be to push Russia's selling prices far below where the market would set them, close to production costs, depriving Russia of excess profits. Instead, the mentality for too many countries is to set the cap levels so high as to only act as circuit breaker against price spikes.”

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