The European Union, the United States, the G7 countries and Australia have agreed on almost all the parameters of the cap price mechanism for Russian oil, which should come into force on December 5, 2022. Discussions continue around the price that will be taken beyond the limit: at the moment it is being discussed in the range from 60 to $70 per barrel. The details of the negotiations and various nuances, citing sources close to the negotiations, are described by The Wall Street Journal , Bloomberg and Reuters .
According to the American newspaper, the final price for Russian oil will be set within the range of $60-70 per barrel. Some countries, for example, Poland and Lithuania, proposed to set the ceiling much tougher – at the level of $20, but this level did not find understanding among other countries that are highly dependent on energy supplies, including from Russia. The authorities of Ukraine also asked to establish a similar level, although Kyiv understood that such an outcome was unlikely.
“From the point of view of our partners, a price of $60 or $65 per barrel looks justified, but from our point of view, we would like to see the maximum possible minimum, at the level of the cost of oil production,” Oleg Ustenko, economic adviser to Vladimir Zelensky, quotes the WSJ.
According to Reuters, representatives of the coalition of Western countries also discussed the possibility of introducing a dynamic price ceiling, that is, the introduction of a price range that would depend on the current market conditions and follow the market price. However, representatives of the countries abandoned this idea, as they considered that such a mechanism would leave the Russian authorities a window for market manipulation by reducing the level of production and supply of oil to the market.
A separate point of the negotiations, according to sources, was the EU's intention to introduce a strict permanent ban on the provision of insurance, financial and other services in case of violation of the terms of the marginal price mechanism. The EU, according to the WSJ, insisted on a complete ban for ships that violated the terms of the mechanism, but the US and the UK pushed through the introduction of temporary bans – they will be introduced for 90 days after fixing the fact of the supply of Russian oil at a price higher than established by the mechanism.
The American edition hints that the main lobbyists for a complete ban were European countries (Greece, Malta and Cyprus), which account for a significant part of the world's tanker fleet. According to Bloomberg, the US and the UK were able to convince the EU to abandon the introduction of a complete ban on the provision of insurance and financial services from December 5. Washington and London fear that a complete ban on the provision of services could lead to a shortage of Russian oil on the market and provoke a new jump in energy prices.
The coalition of "developed democracies" also agreed on a "transitional period" – from December 5 to January 19 (45 days), according to which all sanctions do not apply to Russian oil shipments shipped before December 5 and delivered before January 19. Similar periods of up to 90 days can be introduced if the price limit parameter is changed. This issue has not yet been agreed upon, it is being lobbied by the European Union, the agency notes. The final ceiling will be set depending on historical data on prices for Russian grades of oil, as well as on the basis of information on the cost of oil production.
Western countries expect that the introduced mechanism will significantly hit Moscow's income and reduce the possibility of financing the war against Ukraine. The ultimatums and threats of the Russian authorities, according to which Russia will refuse to supply oil to countries that have supported the mechanism of marginal oil prices, are not believed in the West.
“We have no reason to expect them to do this [reduce supplies to foreign markets], because ultimately it is not in their interest,” a US Treasury Department spokesman said on condition of anonymity.
At the same time, the marginal price mechanism is already bearing fruit and proving its effectiveness: large consumers of Russian oil (China, Turkey and India) buy large supplies of energy at prices well below market prices. Further restrictions, as Western countries expect, will lead to an even greater discount on Russian oil, which will make such purchases even more profitable for Beijing, Ankara and New Delhi. Threats from Russia to cut production in order to provoke an increase in the cost of oil on world markets, according to representatives of the "Western coalition", will lead to disagreements between Moscow and its main buyers, who may even refuse to purchase Russian oil that has risen in price.
“Any action they take to raise prices will affect their new customers, such as India and China, which they [Russia] want to keep as oil buyers in the future,” one of the anonymous US representatives in the talks said.
The Russian authorities, and President Vladimir Putin in particular, have repeatedly said that they will not supply Russian oil to countries that join the oil price ceiling. Moscow insists that Western countries continue to use non-market methods of pressure on Russia, but this allegedly will not affect Moscow's cooperation with other countries. Russia intends to continue supplying energy resources to its partners. However, even official statistics show that the sanctions are hitting Russia's oil and gas revenues, which have been falling to new lows for weeks on end. Western countries may present the final decision on the introduction of a ceiling on oil prices in the evening of November 23rd.