The European Union reached a consensus on the price at which to cap Russian oil just days before its ban on most imports took effect.
News of the deal, which had required the approval of recalcitrant Poland, was confirmed on Twitter by European Commission President Ursula von der Leyen, marking a key step in the West’s efforts to punish President Vladimir Putin without adding pressure on the global economy.
“Today the European Union, the G7 and other global partners agreed to introduce a global price cap on maritime oil from Russia,” von der Leyen said, adding that this would strengthen sanctions against Russia, would lower Moscow’s revenue and stabilize energy markets by allowing EU-based operators to ship oil to third countries provided its price is below the cap.
The bloc’s 27 member states agreed on Friday to set the cap at $60 a barrel, an EU official with knowledge of the situation told CNN on Friday.
The biggest Western economies agreed earlier this year to set a price cap after lobbying from the United States, and pledged to work out the details by early December. But setting a number had proven difficult.
Capping the price of Russian oil at between $65 and $70 a barrel, a range previously under discussion, would not have caused the Kremlin much pain. Urals crude, Russia’s benchmark, has already traded within or near this range. EU countries such as Poland and Estonia had been pushing for the cap to be lower.
“Today’s oil price cap agreement is a step in the right direction, but it is not enough,” the Estonian foreign minister said. Urmas Reinsalu tweeted Friday. “The intention is good, the delivery is weak.”
A price of $60 represents a discount of nearly $27 from Brent crude, the global benchmark. The Urals has been trading at discounts of around $23 in recent days. Reuters reported that the EU deal included a mechanism to adjust the level of the cap to ensure it was always 5% below the market rate.
The risk of settling for a lower price is that Russia could retaliate by cutting production, which would disrupt markets. Russia has previously warned that it will stop supplying countries that adhere to the cap.
With EU countries aligned, the last remaining hurdle to a broader G7 agreement has been removed. A senior US Treasury Department official said Thursday that $60 would be acceptable.
“We still believe that the price cap will help limit Mr. Putin’s ability to profit from the oil market so that he can continue to fund a war machine that continues to kill innocent Ukrainians,” he told reporters. National Security Council coordinator for strategic communications, John Kirby. .
“We think $60 a barrel is appropriate and we think it will have that effect,” Kirby added.
The price cap is designed to be applied by companies that provide shipping, insurance and other services for Russian oil. If a buyer has agreed to pay more than the cap, they will retain those services. Most of these companies are based in Europe or the UK.
Investors are already nervous, with the European Union’s embargo on Russian oil traveling by sea due to come into force on Monday. Confusion over the impact of this measure, as well as lingering questions about the price cap, have unsettled traders.
“There are so many uncertainties, doubts and lack of clarity about policy that no one is quite sure how to act,” said Richard Bronze, geopolitics manager at research firm Energy Aspects.
Oil prices have fallen sharply since the summer as coronavirus lockdowns in China and fears of a global recession weighed on demand. OPEC and Russia announced a sharp production cut in October, but that had little lasting impact on prices. The EU embargo and efforts to cap prices could start pushing them up again.
— Chris Liakos and Betsy Klein contributed to this article.
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