EU plan to price cap Russian oil triggers discord among EU states

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German Economy Ministry State Secretary Sven Giegold said on Thursday that the proposal set by the EU Commission to impose a higher-than-expected price cap on Russian oil made every EU member dissatisfied to a different extent with the plan. 

Earlier today, the Commission proposed imposing a cap on Russian oil worth 275 euros per MWh starting January first, 2023 on the Dutch TTF index, the EU's benchmark for 80% of the EU market.

The cap is said to be implemented in full force if its difference from the global LNG is equal to or greater than 58 euros.

"We will also discuss the mechanism of market correction... There is a number of disagreements among the member states. To sum up, we can say that everyone is unhappy about the Commission's proposal to a different extent, this is what we will discuss today," Giegold said prior to the start of the Energy Council meeting in Brussels today.

The Energy minister further capitalized on the importance of addressing the root causes of soaring energy prices and averting additional threats to the energy sector. 

Dutch Energy Minister Rob Jetten likewise expressed disagreement over the Commission's plan.

"The proposal that is on the table now regarding the market mechanism is flawed. There is a lot of risk for damaging the security of supply and also for the stability of the financial market, so I am also very critical of this proposal," Jetten stated.  

Ahead of the Council's meeting today, Italian Energy Minister Gilberto Pichetto Fratin said that at least 15 EU states have rejected the plan.  

Hungarian Foreign Minister Peter Szijjarto said that none of the EU energy ministers had a say on Thursday's proposal.

The next meeting is scheduled to take place on December 13.  

Read more: US, allies 'likely' agreed to cap Russian oil at $60-70: WSJ

Yesterday, Bloomberg reported that the EU proposed delaying the implementation of the price cap on Russia’s oil exports by adding 45 days to its introduction.

The allotted time applies to oil loaded before December 5 when oil sanctions are supposed to kick in and unloaded by January 19, which aligns with a previous announcement by the US and the UK. However, to approve the cap, EU ambassadors are due to convene on Wednesday, and diplomats are expected to also discuss the price level, which according to Bloomberg if backed and approved, the EU and the Group of Seven (G7)  could announce the cap the same evening.

The decision can only be taken if the EU unanimously votes in favor, and the G7 will be voting in parallel to the 27-nation bloc. It still may not be as effective, as the World Bank reported last month that the proposed G7 Russian oil price cap would need the participation of emerging markets and developing economies to achieve its objectives.

As a result, companies would be prohibited from providing shipping and insurance, brokering, and financial assistance, which facilitate the transportation of Russian oil unless it sells below the agreed threshold.

In light of that, Russian Deputy Prime Minister Alexander Novak affirmed on Wednesday that Russia will not send oil and petroleum products to nations that use the price-cap approach; instead, Moscow will reroute supplies to market-oriented allies or limit production entirely.

"Russia confirms its status as a reliable energy supplier to the world market and the market status of our relations with partners. In this regard, we do not plan to supply oil and petroleum products to countries that will apply the principle of a price cap with the subsequent reorientation of supplies to market-oriented partners or with a production reduction," Novak said.

Read more: US-led group to impose Russian energy price cap by Dec 5: US Treasury