US officials are scaling back the ambition of their plan to impose a cap on Russian oil prices, we’re told, in a move that likely won’t be well received by some in Brussels. The Biden administration is shifting following skepticism from the energy industry and growing risk in financial markets. The US and EU are likely to settle for a loosely policed cap at a higher price than the stricter system once envisioned. The shift in US thinking comes after officials spent months pressuring the bloc to amend its sanctions on Russian oil and is likely to add to EU frustrations. Brussels already believes the US has placed more emphasis on bolstering global oil supplies and hasn’t always been as prepared as Europe to take an economic hit to punish Russia. 

— Lyubov Pronina and Alberto Nardelli

What's Happening

Diesel Shock | The EU’s 200-million-barrel-a-year diesel trade with Russia is poised to halt in the coming months, as its sanctions will ban the delivery of almost all seaborne refined petroleum products from early February. With time running out and the market extremely tight, traders will have to make dramatic cutbacks if they’re going to hit the deadline.

Relief Plans | Emmanuel Macron said his government would unveil measures tomorrow to shield more French companies from rising electricity prices. In Italy, Prime Minister Giorgia Meloni is working on a new aid package worth as much as €9.6 billion to help families and businesses through the end of the year without widening the country’s deficit, we’re told.

Another Hike | The ECB is set to look past intensifying recession fears by lifting interest rates to the highest level since 2009 to tackle record euro-zone inflation. Despite displeasure at rising borrowing costs from politicians including Meloni, almost all economists we surveyed predict a second straight 75 basis-point hike today.

Industry Cracks | European industrial leaders from French tiremaker Michelin to German chemical giant BASF are starting to crack under the weight of record energy and raw material prices. With no end in sight to Russia’s war in Ukraine, companies are heading into an uneasy winter with possible gas rationing and prohibitively high prices.

Going Electric | Volkswagen’s namesake brand is stepping up efforts to go entirely electric and vowing to phase out making combustion cars in Europe completely starting in 2033 at the latest. The VW division will launch 10 new electric models by 2026, including an entry-level car for less than €25,000.

In Case You Missed It

ESG Critics | The world’s most far-reaching set of ESG investment rules is facing a wave of criticism as regulators in Britain and Europe publicly voice their misgivings. Among the concerns by the EU’s markets regulator: the lack of clarity in regulations when it comes to basic ESG concepts such as a “sustainable investment.” 

Growing Bailout | Germany is preparing for a worst-case scenario in which it needs to double financial aid to Uniper, its biggest gas supplier, to €60 billion. Uniper urgently needs money to fund replacements for its supply contracts with hundreds of local German utilities, with the bailout resulting in the full nationalization of the utility by year’s end. 

Instant Pay | The EU is seeking to jumpstart the rollout of instant payments, where it significantly lags behind countries in Asia and Latin America. The bloc’s executive arm yesterday adopted a proposal to require banks to offer transfers of euro payments within 10 seconds to help release some €200 billion locked in transit on any given day. 

Nuclear Simulation | Russian President Vladimir Putin oversaw military drills simulating a nuclear retaliatory strike yesterday, amid growing concerns of a further escalation by the Kremlin in its war in Ukraine. The exercises included the launch of intercontinental ballistic missiles from Kamchatka in the Russian far east, ballistic missiles from the Barents Sea and cruise missiles fired from the air by strategic bombers. 

Bosnian Recount | Thousands rallied in support of Bosnian Serb leader Milorad Dodik, a Kremlin ally who has threatened to break away from Bosnia-Herzegovina, as a protracted recount threatens to challenge his election victory. Dodik’s Oct. 3 bid for the presidency of Republika Srpska, the ethnic Serbian entity within the fragmented Balkan republic, has come under scrutiny amid fraud allegations. 

Chart of the Day

Higher interest rates have been good for Europe’s banks, mostly. This week, Deutsche Bank and Banco Santander reported double-digit gains in lending income, helping bolster earnings even as central banks’ rapid increases in borrowing costs wreak havoc on markets. Those with large trading operations also benefited as the repricing in financial markets fueled revenue from buying and selling debt securities. The results help explain why bank executives have remained relatively sanguine about risks, despite the energy crisis and recession fears.

Today's Agenda
All times CET.

• 10 a.m. Commission President Ursula von der Leyen holds a news conference with Kosovo leader Vjosa Osmani; travels later to Serbia
• 12 p.m. German Chancellor Olaf Scholz meets Greek Prime Minister Kyriakos Mitsotakis in Athens and holds a news conference
• 12:30 p.m. Energy Commissioner Kadri Simson and Norwegian Energy Minister Terje Aasland hold a news conference in Oslo 
• 2:45 p.m. ECB chief Christine Lagarde holds a news conference after a Governing Council meeting
• EU foreign policy chief Josep Borrell in Buenos Aires
• Council President Charles Michel in Kazakhstan