As the December 5 deadline for EU proposed Russian oil cap draw close, there are strong feelings among traders and consultants that the plan could be delayed as policymakers try to smooth market volatility ahead of midterm elections.

Sources familiar with the matter told the World Street Journal [WSJ] that key guidance on the price cap would be set after the November 8 midterms. The development could delay the price cap proposal and slash Russian oil flows when the EU ban fully kicks in.

G7 leaders have been working to cap Russian crude prices in a scramble to keep Russian oil flowing in the spot market, but while limiting Moscow’s war revenue.

Also Read: A Russian Oil Price Cap Will Benefit China, India – US

The European Union ban on Russian crude is expected to fully kick in on December 5, which is when the price cap was initially intended to be proposed to Russia.

But that timeframe looks less likely, as officials aren’t planning on setting the level of the price cap until after midterm elections on November 8th, WSJ quoted sources

Though US Treasury officials have floated a possible cap around $60 a barrel, official details have yet to be ironed out, largely due to Russia’s threat to completely stop selling oil to countries that participate in the plan. If Russia follows through, that could send energy markets through another wave of volatility, potentially jeopardizing democrats’ popularity in elections as President Biden touts falling gasoline prices as a key highlight of his presidency.

Also Read: UK Sanctions Shipment of Russian Oil Above Price Cap

The report said a delay in the price cap could force the EU to decide whether it will follow through with its plan to fully enforce a Russian oil ban, RBC’s commodities chief Helima Croft told the Journal.
That would likely result in Russian oil flows being slashed from the market, exacerbating supply shortages ahead of winter and raising prices.

Already, uncertainty around a price cap has stoked more volatility in energy markets, and fears over how the mechanism would play out likely influenced OPEC+’s decision to cut oil production by 2 million barrels a day, according to Indonesia’s finance minister.

Officials have rolled out some details on how shipping companies and insurers can comply with the price cap plan, but current rules appear to be loose. Sources familiar with the matter said that companies wouldn’t be punished for accidentally facilitating Russian oil trade outside the price cap, and the US Treasury official previously said that policymakers were aware there was no way for insurers to enforce the price cap.

Also Read: U.S. Assures OPEC That G7 Price Cap On Russian Oil Won’t Target Them

That could mean Russia may still be able to export 80%-90% of its oil with the mechanism in place, the official warned.

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