The European Union has failed to agree on the price cap for Russian oil proposed by the G7 as Poland refused to accept the suggested price level, which is about the same level at which Russia is currently selling its oil.
Poland, along with Estonia and Lithuania, wants the price cap to be set at $30 per barrel, Reuters reported, noting production costs for Russian oil have been estimated at around $20 per barrel.
The rest of the European Union, however, seems to be on board with the original cap proposal, despite criticism that it would effectively make it a non-cap since that’s already the price Russia is getting for its oil, and it will not reduce its oil revenues, which is the purpose of the cap.
“The Poles are completely uncompromising on the price, without suggesting an acceptable alternative,” one EU diplomat told Reuters. “Clearly there is growing annoyance with the Polish position.”
Meanwhile, Malta, Greece, and Cyprus were worried the cap would affect their shipping industries when it comes into effect, but they clinched some concessions, according to EU diplomats who spoke to Reuters, and stopped opposing the cap.
The G7 cap should come into effect on the same day as the EU embargo on Russian oil imports, on December 5. It will ban companies shipping Russian oil to insure or finance their cargos using Western service providers unless the price for the cargo is at or below the cap. Using Western vessels will also be banned per the proposal.
The challenge with the cap has been that its goal is dual; it aims at cutting Russia’s oil revenues but keeping enough Russian oil flowing into global markets. Since this dual goal is rather paradoxical, it has been difficult to find a way to do it, eventually settling for what, at the suggested level, will be a non-cap.
Russia has said it will not sell oil to countries that enforce the cap.
By Irina Slav for Oilprice.com
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Equally a ban on companies shipping Russian oil to insure or finance their cargos using Western service providers unless the price for the cargo is at or below the cap is irrelevant since Russia has a sizeable fleet of oil tankers capable of shipping the bulk of its exports around the world. Moreover, it can also use Chinese, Indian and Turkish tankers if needed. Insurance for Russian oil cargoes could be provided by Russia itself or alternatively by countries receiving Russian oil shipments.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert