The European Union has entered the last stretch of negotiations to reach a deal on a new round of sanctions against Moscow, as countries scramble to avoid a politically disastrous update of the price cap on Russian oil.
Under the rules, the cap, currently set at $44.10 per barrel, must be automatically adjusted every six months to remain at 15% below the average market price.
The next review is scheduled for 15 July.
Since Russian oil soared in the aftermath of the closure of the Strait of Hormuz, the revision is certain to push the cap much higher, likely hitting $58 per barrel, which would provide the Kremlin with breathing space at a time when its economy is under growing strain and Ukraine enjoys momentum on the battlefield.
The European Commission considers this scenario unpalatable and has proposed to delay the review until January next year to keep the cap at $44.10 per barrel.
But Malta, Cyprus and, in particular, Greece, three countries with powerful maritime services, have raised questions about the postponement.
“The oil price cap was introduced by the G7 not only to reduce Russia’s revenues from fossil fuel exports but also to preserve stability in global energy markets. This objective is particularly relevant in the current crisis in the Middle East,” a diplomat said.
“Any adjustment to the automatic mechanism of the oil price cap should therefore be carefully calibrated in coordination with our G7 partners.”
Adding to the complications is the fact that the oil cap is part of a much broader package of economic sanctions, which Brussels wants to agree to all at once by unanimity.
A meeting of ambassadors on Wednesday proved inconclusive, and another will take place on Friday afternoon. Some diplomats are flouting the idea of an emergency meeting on Sunday to wrap up the package before the 15 July deadline.
“We’re close,” a second diplomat said. “I hope for a final discussion on Friday.”
From Bacalhau to Kirill
Several crucial issues, however, remain unresolved.
Portugal and Germany have voiced serious concerns about a proposed ban on Russian cod and pollack, respectively, because they are major buyers of these species and their local industries risk a disproportionate impact.
In Portugal, the matter is especially sensitive given that cod, or bacalhau, is the national dish, with a tradition that goes back centuries and sustains a lucrative ecosystem.
The two countries have engaged with the Commission to design a new system that will reduce imports of cod and pollack more gradually and mitigate the supply chain disruption. Germany has found a solution, whereas Portugal keeps searching.
A prohibition on selling LNG tankers to Russia and allowing the transit of Russian LNG through EU waters is also proving tricky, as is an ambitious entry ban on Russian soldiers, which France and Italy are resisting.
In the latest compromise, the entry ban has been narrowed down to short-stay visas and individuals who have taken direct part in the full-scale invasion of Ukraine.
But the most formidable obstacle is Bulgaria.
The country, which recently switched governments, remains staunchly opposed to applying sanctions on Patriarch Kirill, the head of the Russian Orthodox Church, and Vagit Alekperov, a billionaire oligarch linked to Lukoil.
Sofia objects to blacklisting Kirill over religious reasons and Alekperov over a €3 billion compensation claim that Lukoil has filed against the Bulgarian state. Prime Minister Rumen Radev has gone on the record to draw a red line.
For now, the two contested names remain in the draft list, but diplomats expect them to be eventually dropped for the sake of unanimity.
If ambassadors fail to agree on the sanctions package as a whole, they have the option of splitting it up to bring the price cap, the most urgent measure, over the finish line and leave the most contentious elements for subsequent discussions.