November 30, 2022

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The maximum approaching the European Union on the price of Russian oil

The maximum approaching the European Union on the price of Russian oil

The complex effort by Ukraine’s allies to deprive Russia of billions of dollars in oil revenues by capping the price paid for its crude came to a head this week.

European Union diplomats will meet on Wednesday to try to set that price after discussions with the United States and the Group of Seven other industrialized nations, two weeks before the cap is due to take effect.

The diplomats’ meeting in Brussels will mark the final stage in implementing the policy, which requires regulatory and logistical alignment in the complex business of transporting fuel from Russia to markets such as India and China.

The policy must be in effect by Dec. 5, when the European Union begins its near-total embargo on Russian oil, one of several measures the bloc has taken to cripple Russia’s economy and limit its ability to wage war in Ukraine.

The idea behind a price cap is to limit the revenue Russia can earn from its oil exports while avoiding fuel shortages, which could drive up prices and exacerbate a cost-of-living crisis around the world.

The way the G7 countries want to make this work is by placing the onus of implementing and setting the price cap on the companies that help sell the oil: the global shipping and insurance companies, mostly based in Europe.

This is why the regulatory framework to enforce this measure must be adopted in Europe as well as other G7 members such as the United States, Britain and Japan, which also host companies active in transporting or securing Russian oil.

EU ambassadors will need to agree on a price per barrel unanimously. Several diplomats said a decision was expected on Wednesday, but there could be delays.

Since the cap would require a change in EU sanctions against Russia, unanimous agreement among the 27 EU countries on the price is needed.

Seven senior EU diplomats said there was political support for the policy, but opinions differed on where the price should be set. They spoke on condition of anonymity because they did not want to spoil the ongoing talks.

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The idea is to raise the price just enough above the cost of extracting the oil to incentivize the Russians to keep selling, but low enough to make a big dent in the profits they earn.

The cost of extracting a barrel in Russia is estimated to be between $12 and $20; Recently, Russian oil was trading at nearly $70 a barrel on global markets. Treasury Secretary Janet L. Yellen and several European diplomats have indicated that $60 a barrel is the likely price. But EU diplomats from countries closer to Ukraine who take a harder, pro-Ukrainian line have indicated they would prefer a lower price.

The US is allowing the EU to take the lead in setting a price that can be agreed there.

What we consider before using anonymous sources. Do you know the information sources? What is their motive for telling us? Has it proven reliable in the past? Can we confirm the information? Even as it satisfies these questions, The Times uses anonymous sources as a last resort. The reporter and at least one editor know the identity of the source.

A US Treasury spokesperson said the US had no plans to propose a rate to European partners privately. A senior Treasury official said on Tuesday that the alliance is expected to announce the price in the coming days. The price is likely to change over time, the official said, based on regular reviews that take into account changing market conditions.

On Tuesday, the Treasury issued new guidance outlining how the price cap should work, including that it would be set “after a technical exercise conducted by the Price Cap Coalition.”

The directive made clear that Russian oil that was sold under the cap but was “significantly diverted” or refined outside Russia would no longer be subject to sanctions. It also provides a “safe harbor” clause that protects insurers and other financial service providers from liability if they breach sanctions based on false information about the price of oil in shipping transactions.

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Diplomats from Poland and its Baltic neighbors said they would also like to see price caps accompanied by commitments to impose sanctions targeting still-sheltered European trade with Russia, such as Diamonds and nuclear fuel reactors.

The EU embargo on Russian oil that began on December 5th also includes a ban on European services to ship, finance or insure shipments of Russian oil to destinations outside the bloc, a measure that would disrupt the infrastructure that gets Russian oil to buyers. around it. the scientist.

To implement the price cap, these European freight providers would instead be allowed to transport Russian crude out of the bloc only if the cargo meets the price cap. In other words, it would be left to them to ensure that the Russian oil they were transporting or insured sold at or below the specified price; Unlike that, They will be legally responsible for violating the penalties.

Those shipping industries at the center of enforcing a price cap remain in the dark about price and other details of how the cap works. The marine insurance industry, which had been skeptical of the idea from the start, said it would do everything it could to comply.

Wherever a price is set, providers will make sure that insurance is “only granted to shipments below that price per unit,” said Lars Lang, secretary general of the International Marine Insurance Federation, an industry association based in Germany.

G-7 allies appear to have different priorities in setting price caps, said Rachel Zimba, a senior fellow at the Center for a New American Security. The United States has focused on keeping Russian oil on the market, while the European Union wants to starve Russia of as much revenue as possible.

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Delays in setting the price could disrupt the flow of Russian oil as the deadline approaches.

“The longer it takes before a price is released, the higher the risk of doing more oil temporarily because buyers will wait and see,” Ziemba said.

In an interview this month ahead of the G20 summit in Bali, Ms Yellen said it had been difficult for Europe to come to an agreement on price cap mechanisms.

“It takes the agreement of a large number of countries and the European Union requires unanimity,” Yellen said, adding that she was optimistic that it would work out. “We are actively working to appoint him and it will certainly be done by December 5 hopefully before then.”

The United States has publicly resisted proposing a cap price, preferring instead to set public standards.

“We want to make sure it goes up high enough that they retain the impulse to sell,” Ms. Yellen said. “We don’t want it to be economically beneficial for them just to shut it down.”

Biden administration officials say they are confident the proposal has already achieved one major goal — calming oil traders before a potential major disruption as sanctions come online.

Oil prices have fallen in recent weeks, and some fell briefly on Monday to their lowest level since January, before Russia’s invasion of Ukraine. US officials read these prices as a sign that traders are not worried about Russia taking millions of barrels off the market next month.

Keeping the oil flowing — and minimizing the risk of another spike in oil prices — has been the primary goal of the Biden administration with the price cap plan. Depriving Russia of revenue, which would likely hasten the end of the war, would be an added and welcome benefit for Biden.

Jim Tankersley Contribute to the preparation of reports.