The EU's full embargo on purchases of Russian seaborne oil is going to be in place this week, as a way to adjust the cap in future, and to link it to a package of new sanctions against Moscow over its invasion of Ukraine, diplomats said on Tuesday.
The price cap, proposed by the Group of Seven G 7 nations, is supposed to replace the tougher EU plan to protect global supply and prevent price surge, but there is disagreement among the 27 EU countries on the level of the cap.
A senior EU diplomat who is involved in the negotiations said that the negotiations have been ongoing since last Wednesday and we are closer and closer to an agreement.
Last Wednesday, representatives of EU governments debated a price cap level that would still give an incentive for Moscow to sell, but at a much smaller profit.
The G 7 proposal, presented to EU governments by the European Commission, was a price cap of US $65 -- 70 per barrel, a level that diplomats said was fixed in September when Russian oil traded at US $68 76 per barrel on the market.
A cap of around 5 per cent below the market price would be used to make Russians sell while reducing their revenues, a second senior diplomat said. Since then, prices have fallen and are now below the cap level, so that level achieves no objective, he said.
Poland, Lithuania and Estonia have rejected the G 7 proposal, saying that the cap should be closer to Russian production costs, which are estimated to be around US $20 -- 25 per barrel. All three countries, which all border Russia, have a US $30 price cap.
They also argued that the price cap should not be set in stone, given changing global oil markets and Russia's ability to finance the war, because it would be a dynamic tool that could be reviewed often under a mechanism yet to be agreed.
Revenue assumptions in the Russian budget for 2023 were based on oil prices at US $65 per barrel, so setting the price cap at that level would not affect Moscow's ability to finance its war on Ukraine.
Since adopting the G 7 proposal would be effective easing of already agreed EU sanctions, the three countries said that the EU should compensate for that by adopting a new sanctions package against Russia.
This could involve adding more Russian individuals to the list of people who can't enter the EU and banning more Russian state-controlled media outlets from broadcasting in Europe, disconnecting more Russian banks from the global SWIFT payments system, and putting export restrictions on more EU products that Russia could use for both civilian and military purposes.
In a nod to these demands, European Commission head Ursula von der Leyen said last week the EU executive arm was working full speed on a ninth sanctions package that EU government representatives are meeting again on Wednesday and Thursday for regular talks. The oil price cap is not on their agenda, but could still be added to their agenda, diplomats said.
They said they would continue in smaller groups, and between EU and G 7 countries, to find a deal before Monday.