EU Unity Reportedly at Risk Over Price Cap on Russian Gas

The G7 finance ministers confirmed their intention on 2 September to impose a price cap on Russian crude oil, to take effect on 5 December, and on 5 February 2023, for refined products coming from the country, as part of sweeping sanctions against Moscow because of its special operation in Ukraine.

As European Union energy ministers gather in Brussels this Friday for informal talks to thrash out common measures to offset the raging energy crisis, the bloc’s unity is reportedly at risk over some of the radical measures pushed by the European Commission.

Households and companies across the EU are struggling to cover the soaring costs of energy bills, and European Commission President, Ursula von der Leyen, unveiled five draft proposals earlier this week that ministers are expected to debate. Disagreements quickly emerged on a number of points contained in the proposed EU-wide plan.

The emergency meeting in Brussels is to focus on:

“The manipulation of the gas markets has a spill-over effect on the electricity market. We are confronted with astronomic electricity prices for households and companies and with enormous market volatility. These are tough times, and they will not be over soon," von der Leyen said on 7 September.

However, it is the issue of a price cap on Russian gas that is expected to draw particularly strong opposition from some quarters, testing the unity of the bloc.

According to a senior diplomat cited by The Guardian, there was no majority in favor of capping Russian gas as EU member states have "different energy mixes" and "varying exposure" to a potential Russian gas shutdown.

“What is easily implementable in country A could be impossible to implement in country B. But there is an openness from everyone to look at [these proposals], which is different from two or three months ago,” one senior diplomat said.

"We do not consider this as an appropriate measure to alleviate the high energy prices,” an unnamed official from one of these countries was cited as saying by Euronews.

Gas Price Cap

The G7 finance ministers on 2 September confirmed the group’s intention to introduce a price cap on Russian oil and ban sea transportation of oil unless it is bought at a limited price. During the online meeting of the G7 finance ministers and the heads of their central banks, the group also promised to develop "targeted mitigation mechanisms" to ensure that vulnerable countries retain access to energy markets, including from Russia.

The price ceiling is to take effect on 5 December for crude oil and on 5 February 2023, for refined products arriving from Russia. After the G7 decision, the European Commission said that it would also make efforts to impose a price cap on Russia's oil by December.

Several EU member states, such as Hungary, Slovakia, Austria and the Czech Republic, remain highly dependent on Russian gas, despite the share of Russian pipeline crude in the EU's total imports plunging from 40 percent before the Ukraine crisis to 9 percent today.

Hungary, which is highly dependent on gas from Russia, has asserted an independent policy in relation to the Ukrainian crisis, refusing to slap sanctions on Russian energy. It recently signed a contract with the Russian state energy firm Gazprom for extra supplies. Hungary imports approximately 65 percent of its oil and some 80 percent of its gas from Russia, and earlier rejected Brussels' “unenforceable" and "unjustifiable" plan to cut gas consumption by 15 percent.

Budapest reportedly argues that the price cap laid out in the European Commission’s plan is a "sanction" and should only be decided by unanimity – which signifies that it could wield a veto power over the controversial decision.

Hungary's government is waiting for more details about the European Union's proposed price cap on Russian gas as it does not yet fully understand the proposal, Prime Minister Viktor Orban's chief of staff, Gergely Gulyas, was cited as saying on Thursday.

Meanwhile, France, Italy and Poland are some of the countries that not only support a cap, but insist it should apply to all imported forms of the fuel, including liquefied natural gas (LNG).

The Netherlands has also reportedly voiced reluctance over any price cap, and Germany is undecided on the proposal.

On 1 September, Russian Deputy Prime Minister Alexander Novak slammed the idea of imposing a price cap on Russian oil as absurd. Novak warned that Moscow would not deliver oil and oil products to countries that support the decision. Russia’s President Vladimir Putin branded the idea as "stupid" at the Eastern Economic Forum in Vladivostok on Wednesday, adding it would lead to a rise in prices and that global demand for Russian energy was high.