BRUSSELS (AP) – The European Union came close to setting a $60-a-barrel price ceiling on Russian oil — a highly anticipated and complex political and economic maneuver designed to keep Russia’s supplies flowing into global markets while limiting President Vladimir Putin’s ability to finance the war in Ukraine.
EU nations tried to push the cap over the finish line after Poland held out to get as low a figure as possible, diplomats said on Thursday. “Still waiting for white smoke from Warsaw,” said an EU diplomat, who spoke on condition of anonymity because talks were still ongoing.
The latest offer, confirmed by three EU diplomats, comes ahead of a deadline to set the price of discounted oil by Monday, when a European embargo on seaborne Russian crude and a ban on shipping insurance for these supplies goes into effect. The diplomats also spoke on condition of anonymity because the legal process was still not complete.
The $60 figure would mark a cap close to the current price of Russia̵[ads1]7;s crude oil, which this week fell below $60 a barrel, and is intended to prevent a sudden loss of Russian oil to the world after the new Western sanctions. That’s a big discount to international benchmark Brent, which traded at around $87 a barrel on Thursday, but could be high enough for Moscow to keep selling even if it rejects the idea of a cap.
Once the final number is in place, a new buyer cartel – expected to be made up of formal and informal members – will be born. Western allies in the Group of Seven industrial powers led the effort to cap prices and must still approve the figure.
A coalition official, who was not authorized to comment publicly and spoke on condition of anonymity, expressed optimism that a deal could be reached as early as Friday, but warned that negotiations would potentially roll into the weekend or perhaps even Monday.
The official added that putting the price ceiling in place will help end the war faster. On the other hand, the official said not putting it in place would be “a victory for Russia.”
Oil is the Kremlin’s mainstay of financial income and has kept the Russian economy afloat so far despite export bans, sanctions and the central bank asset freeze that began with the February invasion. Russia exports around 5 million barrels of oil per day.
The risk of the price cap failing is enormous for the global oil supply. If it fails or Russia retaliates by stopping oil exports, energy prices around the world could skyrocket. Putin has said he will not sell oil below a price cap and will retaliate against nations that implement the measure.
American and European consumers may feel the consequences of several increases in gasoline pricesand people in developing countries may face greater levels of food insecurity.
With the EU and UK banning insurance for Russian oil shipments, the price cap allows companies to continue insuring tankers bound for non-EU countries as long as the oil is priced at or below the cap. That would avoid a price spike from the loss of supplies from the world’s No. 2 oil producer and cap Russia’s oil revenue close to current levels.
The Treasury Department has issued guidance intended to help firms and marine insurers understand how to comply with the price capand says that the price ceiling may fluctuate depending on market conditions.
Robin Brooks, chief economist at the Institute of International Finance in Washington, said the tariff should have been implemented earlier this year, when oil hovered around $120 a barrel.
“Since then, obviously oil prices have fallen and global recession is a real thing,” he said. “The reality is that it is unlikely to be binding given where oil prices are now.”
Critics of the price cap measure, including former Treasury Secretary Steve Mnuchin, have called the plan “ridiculous.”
Mnuchin told CNBC during a November panel at the Milken Institute’s Middle East and Africa Summit that the price cap was “not only not feasible, I think it’s the most ridiculous idea I’ve ever heard.”
Rachel Ziemba, an adjunct senior fellow at the Center for a New American Security, said that while a worst-case scenario envisions Russia cutting the global supply of oil, “the Saudis and the Emiratis would increase production.”
“Russia has made it clear that the countries that comply with the cap will not receive their oil, and that could also lead to cuts in natural gas exports,” she said. “It’s going to be an interesting few weeks and months.”
Hussein reported from Washington. AP writer Aamer Madhani in Washington and business writer David McHugh contributed from Frankfurt, Germany.