EU clinches deal on new Russia sanctions, including oil price cap

The European Union clinched an agreement on a new sanctions package on Russia, including an oil price cap, and turned to consider options for capping gas prices ahead of a summit in Prague aimed at fostering a unified front on Ukraine.

Reaching the oil cap deal required working out tailored arrangements to cater to the concerns of Malta, Greece and Cyprus, which all have large shipping industries that transport Russia oil and were concerned that the measure would see them losing business to non-western competitors, diplomats said.

Ahead of the summit, the 27 EU states have been split over the next steps in addressing an energy cost crisis that is generating crippling bills for households and businesses and threatening to tip the continent into recession.

A group of member states have called for setting a cap on the level the EU will pay for all gas supplies in order to bring the overall price down, but proposals on how to do this differ and some capitals are concerned that suppliers could simply sell their gas elsewhere.

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In a bid to forge consensus, European Commission president Ursula von der Leyen laid out proposals in a letter to the 27 leaders on Wednesday.

The letter proposed setting up a joint EU gas-purchasing system before the next “filling season” of gas storage facilities next summer, and two measures to limit the price of gas.

The first of these would be a “temporary cap on the price of gas that is used to generate electricity”, Dr von der Leyen wrote.

Negotiations are also ongoing with Norway, a major gas supplier to the EU, in the hopes of agreeing a lowered price.

Officials are working on a proposed new benchmark price for gas that takes greater account of the price of liquefied natural gas, to replace the existing TTF gas trading point which is heavily influenced by the price of pipeline gas.

Until this is introduced, the EU should “consider a price limitation in relation to the TTF” in a way that “continues to secure the supply of gas to Europe and to all member states and that would demonstrate that the EU is not ready to pay whatever price for gas,” Dr von der Leyen wrote.

The commission will propose measures for a “structural reform of the electricity market” by the end of the year.

The EU’s agreement on an oil price cap paves the way for the adoption of such a measure by the G7 – the large economies including the United States, the United Kingdom, Canada and Japan – which agreed to set a limit to the price at which companies could buy Russian crude oil and petroleum products last month.

The US said at the time that this would bring down inflation and reduce the revenues earned by Russia, while Moscow said countries that imposed a cap would not receive oil deliveries.

EU countries were keen to reach the oil cap agreement before leaders meet in Prague on Thursday and Friday, where they are to discuss Ukraine, the energy crisis, and how the union could act jointly to cushion the worsening economic fallout.

The leaders of 44 countries are to come together in Prague Castle on Thursday for the first meeting of the European Political Community, which brings together EU countries with non-member states, including the UK and Turkey, to try to forge broader regional co-operation on geopolitical issues such as the response to Russia’s invasion.

Earlier this week, EU finance ministers agreed to €20 billion in funding for investments and reforms to help member states shift away from dependence on Russia for energy.