The EU is considering a plan to cap the price of Russian diesel at US$100 a barrel — a level that might help to stave off the very worst effects of a fuel-import ban that the bloc is set to impose on Moscow in just 10 days’ time.
The EU’s executive arm is considering the new cap after G7 nations offered a price range based in part on the existing cap on Russian crude oil.
The cap is expected to take effect on Feb. 5, the same date as the EU will ban almost all imports of refined Russian products in response to the nation’s invasion of Ukraine.
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The EU and G7 plan to impose limits on Russian exports to other countries, whose companies would only be able to access key Western services if they comply.
The US$100-a-barrel cap would apply to products such as diesel that trade at a premium to crude, while a lower US$45 cap would be set for discounted products such as fuel oil, people familiar with the matter said.
The figures could still change during talks between member states, they added.
The negotiations need to balance two competing goals: limiting Russian revenue and preventing price spikes or shortages in key products on the global market.
The EU would need to agree unanimously on price cap levels, which the G7 would need to approve.
EU diplomats began discussing the price levels formally yesterday, and heated talks are expected to continue over the next several days.
European officials have been particularly worried about shortages of diesel after the imports ban, and the price cap is aimed at ensuring that Russian exports can still be sold to other parts of the world, thereby keeping global supplies in balance.
While the EU’s import ban would deprive Russia of its top diesel export market and the bloc of its main external supplier, the price cap is secondary to the import ban, said Richard Bronze, head of geopolitics at consultancy Energy Aspects Ltd.
“The looser the price cap or the higher the price cap is set for diesel, it makes it slightly easier for Russia to redirect some of the exports that would no longer be going to Europe,” Bronze said.
“Even a very high price cap wouldn’t mean that Russia could find alternative destinations for all of those supplies, and I don’t think the US$100 a barrel is anywhere close to what I’d classify as a very high price cap,” he said.
G7 officials expect that Russian diesel currently sold to Europe could find buyers in Latin America and Africa. Europe, meanwhile, is expected to buy diesel from the Middle East and the US, which currently sell more to Latin America and Africa.
The changes could usher in higher shipping costs, as some shipments would be traveling over a longer distance.
The refined-fuel cap comes after the EU agreed late last year to set an upper limit on Russian crude exports at US$60 a barrel.
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