A complex effort by Ukraine’s allies to deprive Russia of billions of dollars in oil revenue by putting a cap on the price paid for its crude is coming to a head this week.
European Union diplomats will meet on Wednesday to try to set that price after discussions with the United States and other Group of 7 industrialized nations, with two weeks to go before the cap is scheduled to take effect.
The diplomats’ meeting in Brussels will mark the last stage of implementing the policy that requires regulatory and logistical alignment in the complicated business of ferrying the fuel out of Russia to markets such as India and China.
The policy must be in place by Dec. 5, when the European Union’s near-total embargo on Russian oil begins, one of many actions the bloc has taken to hobble Russia’s economy and limit its ability to wage war in Ukraine.
The idea behind setting a price cap is to limit the revenue Russia can make from its oil exports while also averting a shortage of the fuel, which would force prices up and compound a cost-of-living crisis around world.
The way the G7 nations want to make this work is by putting the burden of implementing and policing the price cap on the businesses that help sell the oil: global shipping and insurance companies, which are mostly based in Europe.
This is why the regulatory framework to enforce this measure needs to be adopted in Europe as well as other G7 members such as the United States, Britain and Japan, which also host companies active in transporting or insuring Russian oil.
E.U. ambassadors will need to approve the price per barrel by unanimity. The decision is expected on Wednesday, several diplomats said, but there could be delays.
Because the cap would require a change in the European Union’s sanctions against Russia, unanimous consent among the 27 E.U. nations on the price is needed.
Seven senior E.U. diplomats said there was political support for the policy, but opinions differed on where the price should be set. They spoke on condition of anonymity because they did not want to upset ongoing talks.
The idea is to set the price high enough over the cost of extracting oil to incentivize the Russians to continue selling, but low enough to make a meaningful dent in the profits they earn.
The cost of extraction per barrel in Russia is estimated between $12 and $20; Russian oil recently traded at nearly $70 per barrel on the global markets. Treasury Secretary Janet L. Yellen and several European diplomats have cited $60 per barrel as a potential price. But E.U. diplomats from nations closer to Ukraine who take an even stauncher pro-Ukraine line have indicated they would prefer a lower price.
The United States is letting the European Union take the lead in determining a price that can win approval there.
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A Treasury spokesman said that the United States had no plans to privately propose a price to European partners. A senior Treasury official said on Tuesday that the coalition was expected to announce the price in the coming days. The price is likely to change over time, the official said, based on regular reviews that take into account changing market conditions.
On Tuesday, the Treasury Department released new guidance outlining how the price cap would work, including that it would be set “after a technical exercise conducted by the Price Cap Coalition.”
The guidance explained that Russian oil that had been sold under the cap but was then “substantially transformed” or refined outside of Russia would no longer be subject to the sanctions. It also provides a “safe harbor” provision that protects insurers and other financial service providers from liability if they violate sanctions based on falsified information about the price of oil in shipping transactions.
Diplomats from Poland and its neighbors in the Baltic Sea said they would also like to see the price cap come with commitments for sanctions that would target still-protected European trade with Russia, such as diamonds and fuel for nuclear reactors.
The European Union embargo on Russian oil that kicks in on Dec. 5 also includes a ban on European services to ship, finance or insure Russian oil shipments to destinations outside the bloc, a measure that would disable the infrastructure that moves Russia’s oil to buyers around the world.
To implement the price cap, these European shipping providers will instead be permitted to transport Russian crude outside the bloc only if the shipment complies with the price cap. In other words, it will be left up to them to ensure that the Russian oil they are transporting or insuring has been sold at or below the capped price; otherwise, they would be held legally liable for violating sanctions.
These shipping industries at the center of enforcing the price cap remain in the dark about the price and other details about how the cap will work. The maritime insurance industry, which has been skeptical about the idea from the start, said it would do its best to comply.
Lars Lange, the secretary general of the International Union of Marine Insurance, an industry association based in Germany, said that wherever the price is set, providers would make certain that insurance “is only granted for shipments below this price per unit.”
Rachel Ziemba, an adjunct senior fellow at the Center for a New American Security, said that the G7 allies appear to have different priorities in setting the price cap. The United States has been focused on keeping Russian oil on the market, while the European Union wants to starve Russia of as much revenue as possible.
A delay in setting a price could disrupt the flow of Russian oil as the deadline approaches.
“The longer it is before there’s a price released, the greater the risk is that more oil temporarily comes off line because buyers will wait and see,” Ms. Ziemba said.
In an interview this month ahead of the Group of 20 leaders summit in Bali, Ms. Yellen said that it has been challenging for Europe to come to an agreement on the mechanics of the price cap.
“It requires the agreement of a large number of countries and the E.U. requires unanimity,” Ms. Yellen said, adding that she is optimistic it will get done. “We’re actively working to set it and certainly it will be done by Dec. 5 and hopefully before then.”
The United States has resisted publicly proposing a price for the cap, preferring instead to set broad parameters.
“We want to make sure it’s high enough that they retain the motive to sell,” Ms. Yellen said. “We don’t want it to be economically beneficial for them to just shut it in.”
Biden administration officials say they are confident that the proposal has already achieved one key goal — soothing oil traders ahead of a possibly large disruption as sanctions come online.
Oil prices have been drifting lower in recent weeks, and on Monday some briefly fell to their lowest level since January, before Russia invaded Ukraine. U.S. officials read those prices as a sign that traders are not worried about Russia pulling millions of barrels off the market next month.
Keeping oil flowing — and minimizing the risk of another oil price spike — has always been the Biden administration’s primary goal with the price cap plan. Denying revenues to Russia, potentially hastening the war’s end, would be an additional and welcome benefit for Mr. Biden.
Jim Tankersley contributed reporting.
Matina Stevis-Gridneff and Alan Rappeport