BERLIN—The European Union is advancing work on a price cap for Russian oil under an approach that keeps the U.S.-led effort on track, but holds off on final approval.
EU member states are near to agreeing on a two-stage approach to the international price cap on Russian oil, which is being developed within the Group of Seven industrial economies. EU officials are preparing legislation needed to implement the measure, but are likely to hold off approving it until the rest of the G-7 is ready, diplomats and officials said.
The EU approach reflects concern among some member states about the proposal, which will place a maximum price on what can be paid for Russian seaborne oil. Hesitation is greatest in EU members with large shipping sectors, including Greece, Cyprus and Malta.
The emerging EU approach means the price cap proposal remains on track to enter into force, but raises fresh questions about how quickly it can be implemented.
Washington has pushed the international oil price cap as a way of minimizing the Kremlin’s revenue from foreign oil sales without inflating oil prices by preventing oil sales to Asia and Africa. The idea is to set a maximum price at which shippers from G-7 countries may legally transport Russian oil to countries in Asia and Africa. The plan would also permit those companies to buy insurance for Russian oil cargoes, a critical aspect of the shipping industry. The G-7 hopes other countries will join the system.
The G-7 still must agree on the details of the price cap, including the price at which to set the cap, its precise implementation methods and how many other countries they need to join the G-7 in launching the cap. U.S. lawmakers are advocating increasing penalties for foreign buyers who don’t abide by the price cap.
U.S. officials have been flexible about how the other G-7 countries decide to implement the cap.
The EU formally backed the measure at the G-7, but European officials have repeatedly raised concerns about how the mechanism would function and its effectiveness in crimping Russia’s oil revenues.
Greece, Malta and Cyprus have raised concerns that banning EU companies from carrying Russian oil that is sold at rates above the price cap could hurt their economies. They fear losing business to countries that stay outside the mechanism, and they have also raised concerns that some G-7 countries may not enforce the price cap as rigorously as the EU, diplomats said.
EU ambassadors are meeting late Tuesday to discuss a proposal under which they could agree on the legislation, but only formally approve the mechanism at a later date if the other G-7 countries have cleared the way to implement the cap system.
That means the 27 EU member states will need to revisit the three central elements of the price cap proposal. First they would need to write an exemption into the June sanctions package that banned EU companies from providing insurance on Russian oil transport after Dec. 5. They would also need to implement a ban on EU shippers transporting Russian oil priced above the cap, and then they would need to sign off on the G-7’s price cap.
The European Union proposed a ban on Russian crude within six months; Moscow and Kyiv accused each other of breaking a cease-fire in Mariupol. Photo: Julien Warnand/Shutterstock
The European Commission, the EU’s executive body, last week proposed to lay the legal basis for the price cap mechanism as part of a new package of sanctions it was placing on Russia in response to the Kremlin’s claim that it was annexing four regions of Ukraine. Sanctions must be approved by all 27 member states.
The EU’s backing is critical because the bloc plays a critical role in both the shipping industry and in shipping insurance sector.
Under sanctions passed in June, the EU agreed to place an oil embargo on Russian seaborne oil by Dec. 5 and, on the same date, ban the provision of services, including shipping insurance, for Russian oil sold outside the bloc. The insurance measure could have choked off oil supplies to Asia and Africa, pushing oil prices higher.
EU diplomats have said that if the G-7 price cap is fully ready and detailed well in advance of Dec. 5, then they can come back and sign off the measures. If the G-7 mechanism is only agreed on a few days before the December deadline, some member states may demand a transition period to fully implement the measure.
Only Australia has pledged to join the G-7 system. European and U.S. officials say it is unlikely that India, China and other top buyers of Russian oil will participate. Still, U.S. officials hope that by agreeing the price cap, they will at least drive down the price that other countries are willing to pay for Russian oil.
—Andrew Duehren contributed to this article.
Write to Laurence Norman at firstname.lastname@example.org
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