(Bloomberg) -- European diplomats are locked in negotiations over how strict a price cap on Russian oil should be, revealing divisions in the bloc.
Poland rejected the EU’s executive arm’s proposed price of $65 per barrel as being too soft on Moscow. Greece, a massive player in the oil shipping industry, doesn’t want to go below $70.
Talks on the Group of Seven-led proposal, originally due to resume Thursday evening, were delayed, as diplomats need more time to overcome differences between member states, according to people familiar with the matter. Negotiations could resume Friday, but also could slip beyond that, some of the people said.
Diplomats are still optimistic a deal can be reached that will keep Russian oil flowing, while also curbing Moscow’s revenue. Critics of the levels proposed so far point to the fact that Russia is already selling its oil at a discount, so a price cap at that level would allow for business as usual.
For its part, the Kremlin appears to be softening its position. Russia had initially said it wouldn’t sell to any country signing up to the price cap and would shut down production instead. On Thursday, it hinted that stance may change.
“Seeing these numbers, we should analyze all this before formulating our position,” Kremlin spokesman Dmitry Peskov told reporters. “It’s hard to forecast what impact this will have on energy markets as yet.”
Oil fell 0.7% as traders expect Russian oil to keep flowing as a result of the talks. Shutting Russian oil out of the global market would send prices surging.
That’s why the US first proposed the price cap as an alternative to EU sanctions that were so strict they risked shutting down swaths of production. The idea was to keep the oil flowing but also cap the revenues going into Vladimir Putin’s war machine. The US argued that a spike in prices caused by EU sanctions could eventually help Putin.
The EU sanctions would bar access to insurance and services for any ship transporting Russian oil. The cap allows access to those services, but only if the crude was purchased below a certain level.
In the background in Brussels is another tussle: EU energy ministers met on Thursday to try to agree on new tools to contain a broader energy crisis that’s dragging down economies and threatening blackouts. A deal proved elusive over a spat about capping market gas prices.
Read: EU Puts Energy Crisis Steps on Hold to Address Gas Price Cap
Ambassadors are scheduled for more talks on the oil-price cap on Thursday evening. Major new European sanctions kick in on Dec. 5, creating an urgency to get the price and other details buttoned down.
A senior government official within the price-cap coalition expressed confidence that EU governments would agree soon on a price. The official added that the price being debated fit well with criteria already agreed to by the countries backing the plan, and the price could be adjusted over time if necessary.
At $65, the price cap would be well above Russia’s cost of production. As Russia is already selling its crude at discounts, a high cap would likely have minimal impact on trading. Such a price would likely be at, or slightly above, the spot price for Urals, Russia’s key export grade.
“Russian oil currently trades at a significant discount compared to Brent, around $65 per barrel,” said Simone Tagliapietra, a senior fellow at the Bruegel think tank in Brussels. “Should the G-7 price cap for Russian oil be set at a similar level, it wouldn’t do much harm to Russia.”
Oil Price Cap Looks Set to Pose Minimal Hit to Trade
The priorities behind setting the price cap have been somewhat ambiguous: The US wanted to make sure Russian oil kept flowing while also trimming Moscow’s revenue. The EU sanctions initially appeared more focused on reducing revenue for Putin. The result of the hard-negotiated cap has been to soften the impact of the impending EU sanctions.
Amid unease in some parts of the bloc, the EU is now working on a new sanctions package that it hopes to present to member states soon. Poland and others have been pushing the bloc’s executive arm to accelerate that timeframe.
--With assistance from Michael Nienaber, Jan Bratanic, Maria Tadeo and Christopher Condon.
(Updates with talks delayed in third paragraph)
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