EU struggles with Russian oil price cap

European Union governments remained split on Thursday over what level to cap Russian oil prices at to curb Moscow’s ability to pay for its war in Ukraine without causing a global oil supply shock, with more talks possible on Friday if positions converge.

The EU states failed to reach a deal on the price level for Russian sea-borne oil on Wednesday because a Group of Seven nations (G7) proposal for a cap of $65-70 per barrel was seen as far too high by some and too low by others.

The European Commission, the Czech EU presidency, the United States and G7 presidency Germany were all engaged in talks on Thursday to bridge differences and reach a deal before the price cap is due to come into force on December 5.

“There are a lot of bilateral talks going on now at very high levels. There will be a meeting of representatives of all EU countries once there is progress. There is no point in calling another meeting if there is no change,” one EU diplomat said.

Diplomats said that six of the EU’s 27 countries opposed the price cap level proposed by the G7.

Poland wants the cap to be set at $30, arguing that with Russian production costs that some estimate at $20 per barrel, the G7 proposal would allow Moscow too much profit. Lithuania and Estonia back Poland.

“In principle, Poland supports the price cap on the Russian oil but the proposed level is extremely too high,” said Adrian Biernacki, a spokesman for the Polish representative to the EU.

“This level should refer to the production costs per barrel of crude oil, and not to current market price,” he said.

Some 70%-85% of Russia’s crude exports are carried by tankers rather than pipelines. The idea of the cap is to prohibit shipping, insurance and re-insurance companies from handling cargos of Russian crude around the globe, unless it is sold for less than the 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.

Cyprus, Greece and Malta, countries with big shipping industries that stand to lose most if Russian oil cargoes are obstructed, argue the cap is too low and want compensation for the loss of business or more time to adjust.

Cyprus is especially concerned about tankers sailing under its flag changing their registration to other flag-of-convenience countries outside the EU like Panama or Liberia.

Russian Urals crude oil already trades within the discussed range at around $68 per barrel.

“That means the proposed cap would either be the same as, or slightly higher than, the price Russian oil is fetching on the open market. It would be, in other words, another price cap that does not cap,” the Eurointelligence think tank said in a note.