BRUSSELS (Reuters) - European Union countries are inching towards a deal this week on a price cap on Russian oil, a way to adjust the cap in future, and on linking it to a package of new sanctions against Moscow over its invasion of Ukraine, diplomats said on Tuesday.
The deadline for a deal is Dec. 5 because that is when the EU's own full embargo on purchases of Russian seaborne oil, agreed at the end of May, kicks in.
The price cap, a softer measure proposed by the Group of Seven (G7) nations, is supposed to replace the tougher EU plan to protect global supply and prevent a price surge, but there is disagreement among the 27 EU countries on the level of the cap.
"Consultations have been ongoing since last Wednesday and we are inching towards an agreement, we are closer and closer," one senior EU diplomat involved in the negotiations said.
Last Wednesday, representatives of EU governments debated for the first time a price cap level that would still provide an incentive for Moscow to sell, but at a much smaller profit.
The G7 proposal, presented to EU governments by the European Commission, was a price cap in the range of $65-70 per barrel - a level that diplomats said was fixed in September when Russian oil traded at $68-76 per barrel on the market.
"The idea was that a cap of around 5% below the market price would work to make the Russians sell while reducing their revenues," a second senior diplomat said. "But since then prices have kept falling and are now below the cap level, so that level achieves no objective," he said.
Poland, Lithuania and Estonia, therefore, rejected the G7 proposal saying the cap should be closer to Russian production costs, which are estimated at about $20-25 per barrel. The three countries, which all border Russia, back a $30 price cap.
They also argued that, given changing global oil markets and Russia's ability to finance the war, the price cap should not be set in stone, but be a dynamic tool that could be reviewed often under a mechanism yet to be agreed.
They also noted that revenue assumptions in the Russian budget for 2023 were based on oil prices at $65 per barrel, so setting the price cap at that level would do nothing to curb Moscow's ability to finance its war on Ukraine.
Since adopting the G7 proposal would be an effective easing of already agreed EU sanctions, the three countries said the EU should compensate for that by adopting a new sanctions package against Russia.
This could involve adding more Russian individuals to the list of people who cannot enter the EU and whose EU assets would be frozen, banning more Russian state-controlled media outlets from broadcasting in Europe, disconnecting more Russian banks from the global SWIFT payments system, and putting export restrictions on more EU products that Russia could use for both civilian and military purposes.
In a nod to these demands, European Commission head Ursula von der Leyen said last week the EU executive arm was "working full speed on a ninth sanctions package".
EU government representatives are meeting again on Wednesday and Thursday for regular talks. The oil price cap has not been added to their agenda, but still could be, diplomats said.
They also said talks would continue in smaller groups, and between EU and G7 countries, to find a deal before Monday.
(Reporting by Jan Strupczewski; Editing by Mark Potter)