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EU Poised to Adopt G7 Price Cap for Russian Oil

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The EU looks set to approve a price cap for Russian oil exports this week as part of a coordinated plan with G7 nations that seeks to rein in Moscow's oil revenues without curbing global supplies.

The Czech Republic — current holder of the EU's rotating presidency — said on Wednesday that member states' ambassadors in Brussels had agreed a new package of sanctions that includes the price cap.

Final approval is expected in the coming days, barring any last-minute objections from member states.

The Czech government described the new sanctions as "a strong EU response to [Russian President] Putin's illegal annexation" of four areas of Ukraine.

It said the new measures include "prohibition of maritime transport of Russian oil to third countries above the oil price cap and a ban on related services."

The price cap is the most complicated energy sanctions measure that Western countries have ever tried to impose, and US officials have been traveling the world recently to try and explain the policy.

Provision of Services

The cap will take the form of an exemption from an EU prohibition on providing services that facilitate Russian oil sales — as long as they comply with the price cap — no matter where that oil is shipped to.

That prohibition — part of an earlier EU sanctions package — is set to come into effect on Dec. 5 — the same date a ban on seaborne imports of crude into EU member states.

"The price cap should be seen as a release valve, or an amendment to, or extension of the sixth [EU] sanctions package," US Treasury Assistant Secretary Ben Harris told the Energy Intelligence Forum.

"I can't say this more clearly: the intention is to preserve the trade of Russian oil … it's not to take it off the market," he added.

In addition to the ban on seaborne imports of Russian crude oil, an EU ban on imports of refined products is set to take effect on Feb. 5.

Other Countries to Follow

Once the EU gives final approval to the price cap mechanism, other G7 countries are expected to finalize their policies, including the UK which accounts for a large portion of global shipping insurance.

European Commission President Ursula Von der Leyen proposed an eighth round of EU sanctions last week as Russia prepared to annex land in Ukraine and threatened to use nuclear weapons.

She welcomed member states' approval of the new package on Wednesday, tweeting that the EU "will never accept ... any kind of annexation in Ukraine."

"We are determined to continue making the Kremlin pay" for its war in Ukraine, she added.

Meanwhile, oil trading executives told the Energy Intelligence Forum this week that there is considerable confusion about how the price cap will work and skepticism about how effective it will be.

Vitol CEO Russell Hardy warned of the "potential problem that we shut in more oil than we expect by creating a regulation that's a little bit difficult for people to navigate."

And Trafigura's Ben Luckock said smaller service providers could run into problems with compliance.

However, the US Treasury has said it will give service providers the benefit of the doubt as long as they do their best to check that the price at which oil was acquired falls below the cap.

For more coverage of the Ukraine crisis, visit Ukraine Crisis: Energy Impact

Topics:
Oil Supply, Sanctions, ENERGY INTELLIGENCE FORUM 2022, Ukraine Crisis, Oil Trade, Policy and Regulation
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