An American push to cut one of the EU back sanctions against Russian oil has so far begun to gain traction within the 27-member bloc, with officials considering whether to allow insurance companies to cover shipments of Russian oil if the price at which the oil will sell falls below a ceiling.
After weeks of conflict, the EU approved in early June a ban on insuring shipments of Russian oil along with a ban on imports of Russian oil, which is due to take effect in later years. Because many shipments of Russian oil are insured in the EU and the UK, Finance Minister Janet Yellen has repeatedly said she is concerned that EU plans could remove Russian oil from the global market and drive up prices further.
While the United States and the European Union has moved to ban Russian imports, many developing countries as well as China and India continue to buy oil from the country. Ms. Yellen said she was discussing creating an exemption in the insurance ban to allow shipments to low-income and developing countries that fall below a price set by the West.
“You could think of it as an exception to that ban,” Ms. Yellen during a press conference Monday in Toronto that confirmed a Wall Street Journal report that the idea was under consideration. “We believe that a price exemption is also an important way to prevent contagious effects for low-income and developing countries struggling with high food and energy costs.”
Ms. Yellen’s push for a price cap has faced deep reluctance in Europe to take any step to phase out a hard-won sanctions package against Russia.
But arguments from Ms Yellen and the US that oil sanctions are raising energy prices – which in turn could help Russia earn enough revenue from higher prices to offset lower sales volumes – have begun to change views in some European capitals, including London and Brussels, according to officials , who is familiar with discussions. Still, there remains skepticism about how to create an effective mechanism to enforce a price cap, according to officials.
A group of Finance Ministry officials traveled to Europe in the days after the EU approved the oil sanctions, as Mrs Yellen continued to publicly call for a price cap. She has tried to limit Russia’s revenues from oil sales while avoiding global price increases.
A senior EU official said the US proposal was “attractive when you look at what the intention is”, but “there are many questions that need to be looked at first” on how a price cap would work. European officials say that although a number of ideas have been put forward in the negotiations, there is still plenty of work to be done to identify a mechanism that would work.
This weekend, President Biden will travel to Europe to meet with the leaders of the group of seven rich countries, which include the EU, the UK, the US and Canada. There is no expectation in Europe that Western nations will reach agreement on the proposal at the summit.
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Chrystia Freeland, Canada’s Deputy Prime Minister, who met with Ms. Yellen in Toronto, said Canada supported creating a price cap for Russian oil. She said Europeans will have to accept it in order for it to come into place.
“The way forward here is really to talk to our European partners and acknowledge, you know, how central they are in decision-making here,” she said.
A particular problem, officials say, is that insurance companies must decide in advance whether they will insure a tanker without knowing whether the ship will comply with Western rules on price caps. Others have raised questions about what price to set as a ceiling and how to ensure that it reduces Kremlin revenues without deterring Russia from selling the oil, which would sharpen concerns about supply. U.S. officials have been investigating break-even costs for Russian oil producers, as well as shipping methods, according to a finance minister.
German officials have long argued that a price cap on energy seems impractical and unmanageable.
Any agreement would have to persuade all 27 EU Member States to adjust their insurance ban sanctions and would have to bring on board the UK, which dominates the reinsurance industry. Norway, whose companies also own a significant part of the protection and non-life insurance market, implements EU sanctions, so any adjustment from Brussels should automatically bring it about.
It may not be straightforward to win the support of all EU member states for a price cap proposal. Greece, Cyprus and Malta successfully pushed for a longer phasing-in period for the ban on oil sanctions and rejected a proposal to ban European tankers from transporting Russian oil. European diplomats are not eager to resume that struggle.
Western officials have struggled with how to cut off Russia’s ability to finance its invasion of Ukraine and still shield the global economy from a possible recession. Russia continues to receive significant revenues from its sales of oil and natural gas, while oil prices have risen sharply this year, although they have retreated somewhat in recent weeks, trading at around $ 100 per barrel. barrel on Wednesday. Inflation has become a worldwide problem, and the Biden administration has recently branded it as its biggest economic-political problem.
Officials in Ukraine support the idea of a price cap, and Oleg Ustenko, an economic adviser to President Volodymyr Zelensky, said Ukraine is also seeking to prevent further inflation.
American consumers are facing an inflation rate of over 8%, “but here in Ukraine we are talking about an inflation rate of 20% plus, so it is also in our interest,” Mr Ustenko said. “We are mitigating possible increases in energy markets because of this plan, which is actually very important for everyone, including the EU, including us,” he said.
“I’m very much in favor of this plan. I think it’s something we need to do right away,” Mr Ustenko said.
—Daniel Michaels contributed to this article.
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