The Group of Seven nations (G7) is looking at a price cap on Russian sea-borne oil in the range of $65-70 per barrel, a European Union diplomat said on Wednesday.
Ambassadors from the 27 EU countries are discussing the G7 proposal with the aim of reaching a common position by the end of the day. Views in the EU are split, with some pushing for a much lower Russian Oil price cap and other arguing for a higher one.
The G7, including the United States, as well as the whole of the European Union and Australia, are slated to implement the price cap on sea-borne exports of Russian oil on Dec. 5.
The move is part of sanctions intended to slash Moscow’s revenue from its oil exports so that it has less money to finance its invasion of Ukraine.
“The G7 apparently is looking at a $65-70 per barrel bandwidth,” the EU diplomat said.
“Poland, Lithuania and Estonia consider this too high because they want the Russian Oil price set at the cost of production, while Cyprus, Greece and Malta find it too low, because of the risk of more deflagging of their vessels, which might mean the G7 has found a good middle-ground,” the diplomat said.
Some 70%-85% of Russia’s crude exports are carried by tankers rather than pipelines. The idea of the Russian Oil is to prohibit shipping, insurance and re-insurance companies from handling cargos of Russian crude around the globe, unless it is sold for no more than the maximum price set by the G7 and its allies.
Because the world’s key shipping and insurance firms are based in G7 countries, the price cap would make it very difficult for Moscow to sell its oil – its biggest export item accounting for some 10% of world supply – for a higher price.
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At the same time, because production costs are estimated at around $20 per barrel, the cap would still make it profitable for Russia to sell its oil and in this way prevent a supply shortage on the global market.
Brent crude front-month future oil prices initially fell to $86.54 from $87.30 on the news. Russian Urals crude oil already trades within the discussed range at around $68 per barrel.
The EU diplomat said most countries in the 27-nation European Union, with G7 members France and Germany taking the lead, were supportive of the Russian Oil price cap, worried only about the ability to enforce it.
EU countries that have large shipping industries like Greece, Cyprus and Malta have raised technical issues that are likely to be overcome, the diplomat said.
Cyprus also wanted compensation for its ships that have moved their registration to outside the bloc to avoid the loss of business caused by the price cap, but the demand would not fly, the diplomat said, because other EU countries have not been compensated for loss of money due to sanctions.
The only two countries outrightly opposed to the cap during the ambassadors’ discussions were Poland and Hungary, the diplomat said.
“Poland because they want it to be accompanied by a ninth sanctions package, Hungary because they claim a price cap will do nothing to de-escalate the war in Ukraine,” the diplomat said. “It’s unclear how far they intend to push this opposition.”