EU edges closer to $60-per-barrel Russian oil price cap

The European Union was moving closer to setting a $60 per-barrel price limit on Russian oil — a complex and highly anticipated political and economic manoeuvre that will keep Russia’s oil supplies flowing to global markets and restrict President Vladimir Putin’s ability to fund his war with Ukraine.

Diplomats on Thursday said that the EU countries sought to push the cap to the finish line after Poland refused to accept a lower figure. “We are still waiting for white smoke to come from Warsaw,” said an EU diplomat who spoke under condition of anonymity as the talks were still ongoing.

Three EU diplomats confirmed the latest offer ahead of Monday’s deadline for setting the price for discounted crude oil. This is when a European embargo will be in effect on seaborne Russian crude as well as a ban on shipping insurance. Because the legal process is still incomplete, diplomats spoke under condition of anonymity.

This $60 figure would be close to the current price for Russian crude oil, which dropped this week to below $60/barrel. It is intended to prevent any sudden loss of Russian oil from the world after the new Western sanctions. This is a significant discount from Brent international benchmark Brent which traded at around $87 per barrel on Thursday. However, it could be enough to allow Moscow to continue selling oil even if the idea of a cap is rejected.

Once the final number has been set, a new buyer’s cartel will be formed. This will include both formal and informal members. The price cap was led by the Group of Seven industrial power allies, who still have to approve it.

Unauthorized to speak publicly, a coalition official expressed optimism that an agreement could reach as early as Friday but warned that negotiations could continue into the weekend, or possibly Monday.

Official added that the price cap will make the war more manageable. The official also stated that Russia would win if it did not put the price cap in place.

The Kremlin’s primary source of financial revenue is oil. It has helped keep the Russian economy afloat despite sanctions, export bans and freezing central bank assets since the February invasion. Russia exports approximately 5 million barrels per day.

Global oil supplies are at risk from the price cap’s collapse. Energy prices could rise if the price cap fails or Russia responds by stopping oil exports. Putin stated that he will not sell oil below a price cap, and would retaliate against countries that implement it.

U.S. and European gasoline prices could rise further, and food insecurity could be worse for people living in developing countries.

The price ceiling permits companies to continue insuring tankers heading for non-EU countries despite the bans by the U.K. and EU on Russian oil shipment insurance. As long as the oil is priced below the cap, it will be possible to continue insuring them. This would prevent a price rise from the loss in supplies from the No. Russia would be the world’s No. 2 oil producer, and Russia would have to maintain its oil income at current levels.

The Treasury Department has issued guidance to assist maritime insurers and firms in understanding how to adhere to the price ceiling. It states that the price limit could change depending on market conditions.

Robin Brooks, the chief economist of the Institute of International Finance, Washington, stated that the cap should have come into effect earlier in the year when oil was hovering at $120 per barrel.

He stated that oil prices have dropped since then and that global recession was a real possibility. “The truth is that it’s unlikely to be binding, given the current oil prices.”

Former Treasury Secretary Steve Mnuchin was one of the critics of the price cap plan.

CNBC heard Mnuchin tell CNBC that the price cap was not only impossible, but the most absurd idea he’d ever heard.

Rachel Ziemba is an adjunct senior fellow at The Center for a New American Security. She stated that, while Russia could cut off oil supply worldwide in the worst-case scenario, the “Saudis and Emiratis” would increase production.

She stated that Russia has made it clear that oil will not be exported to countries that don’t comply with the cap. This could lead to reductions in natural gas exports. This will be an exciting few weeks and a few months.

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