The European Union is rushing to agree to the oil price ceiling after Putin’s threats

The European Union is rushing to agree to the oil price ceiling after Putin’s threats

(Bloomberg) – European Union member states are racing to reach a political agreement within weeks that would cap the price of Russian oil.

The push has gained steam since President Vladimir Putin announced a “partial mobilization” of troops in an escalation of Russia’s war in Ukraine and is likely to appear as part of a new sanctions package proposed by the European Commission, according to people familiar with the matter. with the matter. Setting a cap would be in line with US efforts to keep the cost of crude oil from rising and hurting Moscow’s revenue.

But despite new efforts by the Commission, the executive arm of the European Union, and some member states, the plan faces many obstacles and the positive outcome is not imposed, said the people, who requested anonymity because the discussions are private. Sanctions decisions require consensus and are particularly complex in this situation because each EU member has different energy needs.

People said representatives from member states will meet with the commission over the weekend to discuss the new sanctions, which could include additional restrictive measures on individuals and sectors such as technology and luxury goods, along with caps on oil.

group of seven

People said many details still needed to be ironed out, including the price at which the ceiling should be set. It also remains unclear how such a cap would be implemented in addition to the EU embargo on Russian oil and a ban on services needed for shipping agreed earlier this year. Either way, there is a degree of urgency as the price cap must be adopted before the EU measures come into effect on December 5.

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EU Economics Chief Paolo Gentiloni, speaking after the G7 reached a political agreement on the cap earlier this month, said the Commission would work to get the support of all the bloc’s countries for the measure.

People said representatives of national governments in Brussels will aim to reach an initial agreement on a price cap before an informal meeting of EU leaders in Prague on October 6. But one of the biggest question marks will be Hungary, which has often played the role of spoiler when unanimous decisions are needed in the European Union.

Hungarian Prime Minister Viktor Orban has launched a campaign at home criticizing any bloc-wide energy sanctions. Hungary delayed the adoption of an EU sanctions package in June targeting crude, and only signed the signing after it secured waivers that would allow Budapest to access the pipeline oil.

Rising prices

In June, the 27-nation bloc spent weeks haggling over the terms of existing oil measures, which include a ban on seaborne Russian oil and petroleum products, an exemption for pipeline deliveries, and a ban on providing services, such as insurance, to Russian oil. shipments anywhere in the world. The United States has been pressing for the ban to be eased over fears that it could lead to higher global oil prices.

It remains unclear how effective the pricing system will be, especially since some of Russia’s largest buyers, including China and India, have not agreed to join. US officials argued that the price cap could work even if many buyers did not formally join the alliance, as they could still use the system to lobby in contract negotiations with Moscow to negotiate lower prices.

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Adopting the cap would also require member states to set aside national interests in favor of European solidarity.

EU countries that have won exemptions for oil received through their own pipelines will want to ensure that those exemptions remain in place, while countries that import by sea could seek to tie the price ceiling to the currently envisioned full ban on seaborne shipments in order to level the playing field. , said one of the people. The person added that shipping countries, such as Greece, Cyprus and Malta, may also try to protect their industries from the measures.

© Bloomberg LP 2022

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