After weeks of intense negotiations, the ambassadors of the European Union have closed this Friday an agreement to set a Russian oil price cap transported by ship 60 dollars per barrel and an adjustment mechanism to keep the figure 5% below the average price of Russian oil in the international market. The goal is to limit the Moscow income and continue to stifle its economy because of its war in the Ukraine. The cap is part of the agreement closed by the G7 countries –Germany, Canada, the United States, France, Japan, the United Kingdom and Italy– and the objective is that it enters into force in the next few hours, before Monday, December 5, the date on which the EU embargo on Russian crude begins to apply, one of the measures included in the sixth package of sanctions against the Kremlin.
The ambassadors of the 27 had spent weeks trying to close an agreement and avoid the veto (initially from Greece, Malta and Cyprus) and from the Baltic countries and Poland, which had resisted until now, arguing that imposing too high a ceiling – the initial proposals placed it at around 65-70 dollars – would be a setback in terms of sanctions since it would allow the Kremlin to continue financing its war in Ukraine. According to what diplomatic sources have explained, the agreement, which includes frequent revisions of the limit, “with regular and transparent information to the Council”, will enter into force once the written procedure launched by the Czech presidency of the EU is concluded and will affect third countries that They are not part of the EU and the G7.
#CORES | ✅ Ambassadors have just reached an agreement on price cap for Russian seaborne #oil ????️. Written procedure follows, decision will enter into force on publication in the Official Journal. EU stays united and #StandWithUkraine. ???????????????? #EU2022CZ pic.twitter.com/92vHTFDzxV
— EU2022_CZ (@EU2022_CZ) December 2, 2022
“I welcome the EU’s agreement on setting a maximum price for Russian oil. Crippling Russia’s energy revenues is at the core of stopping Russia’s war machine,” Estonian Prime Minister said. Kaja Kallainvolved “personally” in the negotiations of the pact that will prohibit the transport of Russian oil to third countries as well as the insurance services if it entails a price higher than 60 dollars per barrel.
It was in June that the Twenty-seven agreed to ban the purchase, import or transfer of Russian oil. The restrictions -with temporary exceptions for imports of crude oil by pipeline for countries that, due to their geographical situation, suffer a specific dependence on Russian supply- apply as of December 5 for crude oil and of the February 5, 2023 for other refined petroleum products. Since most of the Russian oil that arrives in the EU does so by sea, the restrictions will cover almost 90% of Russian oil imports to Europe by the end of 2022.
Gas cap negotiations
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At the same time, the Twenty-seven continue to work on the proposal put forward a week ago by the European Commission to put a cap on the price of gas in the TTF market. A large group of countries, led by Spain, described the Brussels plan as unrealistic, insufficient and unambitious and the Czech presidency of the EU is now working at cruising speed to achieve a compromise document that is acceptable to the majority of the Member States at the extraordinary meeting of energy ministers on December 13.
The Brussels proposal establishes a corrective mechanism that would be activated if the price of gas exceeds 275 euros per megawatt hour for two consecutive weeks. And if the difference with respect to the price of liquefied natural gas (LNG) in international markets exceeds 58 euros for 10 days. After the first debate held among the Twenty-seven last week and the negotiations in the working groups, Prague is now proposing to place the activation ceiling at the €264 for 5 consecutive days, compared to the two weeks that Brussels wanted, and in limiting the price difference of €58 internationally to 5 days. Countries like Italy, Greece, Poland, Slovakia and Belgium are demanding an even lower fixed ceiling, of 160 euros, or a dynamic ceiling linked to different indices -not only the TTF- and which would be defined each month.