(Bloomberg) -- European Union nations are struggling to reach an accord on imposing a price cap on Russian oil and will likely push back a deal on the issue until after a broader sanctions package has been agreed.
Cyprus and Hungary are among the countries that have expressed opposition to the oil cap proposal, according to people familiar with the ongoing talks. Sanctions in the EU require unanimity, giving each nation an effective veto.
The European Commission, the bloc’s executive arm, met with member states over the weekend to try to find a compromise on the package of restrictive measures, according to the people. Countries may push to have a preliminary deal ahead of an informal gathering of EU leaders in Prague on Oct. 6.
The EU is scrambling to put tougher sanctions in place after Russian President Vladimir Putin announced a “partial mobilization” of troops last week and started holding UN-condemned “referendums” on annexation in areas of Ukraine it is still occupying. There have also been recent reports that Ukrainian forces had uncovered a mass grave in the city of Izyum, which had been controlled by Russia. Other measures being discussed include import controls on diamonds and banning certain steel products.
Separately, the 27 member states were also closer to backing a proposal to restrict the export to Russia of electronic components used in weapons, said the people.
Member states contend that further limiting access to the electronic components used in weapons against Ukraine is one of the most efficient tools to hit Russia’s military, particularly as Moscow needs more arms for the up to 300,000 additional soldiers it’s seeking to mobilize.
The EU push to impose a price cap on Russian oil would align the bloc with a US effort to keep the cost of crude from soaring and to eat into Moscow’s revenue from energy sales. The Group of Seven reached a political agreement on a cap earlier this month and the commission said it would work to implement the proposal.
Many details still need to be ironed out, including at what price the allies would set the cap, the people said. Any measures would need to take effect before Dec. 5, when previously adopted EU measures take force that ban the import of seaborne oil as well as the services needed to ship it.
In June, the bloc’s 27 nations spent weeks haggling over the terms of the current oil measures, which include an embargo on Russian seaborne oil and petroleum products, an exemption on pipeline deliveries and a ban on providing services, such as insurance, to Russian oil shipments anywhere in the world. The US has been pushing to loosen those prohibitions over fears that they could lead to a spike in global oil prices.
It remains unclear how effective a price-cap regime would be, particularly since some of Russia’s biggest buyers, including China and India, haven’t agreed to join. US officials have argued that the price cap could work even if many buyers don’t officially join the coalition, since they could still use the system for leverage in contract negotiations with Moscow to negotiate lower prices.
Adoption of the cap would also require member states to put national interests aside in favor of European solidarity.
EU countries that won exemptions for oil received through their pipelines want to ensure that those remain intact, while nations that import via sea could seek to link the price cap to the currently envisioned full embargo on seaborne deliveries in order to level the playing field, one of the people said. Shipping nations, such as Greece, Cyprus and Malta, could also try to protect their respective industries from the measures, the person added.
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