EU agrees $60 a barrel price cap on Russian seaborne oil

The initial G7 proposal last week was for a price cap of $65-70 per barrel with no adjustment mechanism

By Reuters

Published: Thu 1 Dec 2022, 7:45 PM

European Union governments tentatively agreed on Thursday on a $60 a barrel price cap on Russian seaborne oil - an idea of the Group of Seven (G7) nations - with an adjustment mechanism to keep the cap at 5 per cent below the market price, an EU diplomat said.

Poland, which had pushed for the cap to be as low as possible, has until 1500 GMT to agree to the deal, which would need to be approved by all EU governments in a written procedure by Friday, the diplomat said.

The initial G7 proposal last week was for a price cap of $65-70 per barrel with no adjustment mechanism.

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Since Russian Urals crude already traded lower, Poland, Lithuania and Estonia rejected that level as not achieving the main objective of cutting Moscow’s revenues and its ability to finance its war in Ukraine.

“The price cap is set at $60 with a provision to keep it 5 per cent below market price for Russian crude, based on IEA figures,” the EU diplomat said. The reviews of the price cap level would be held every two months, EU diplomats said.

“Poland has until 1600 CET to agree. If it does there will be a written procedure for adoption until tomorrow,” the diplomat said.

Polish diplomats said consultation with Warsaw was ongoing.

EU diplomats said that Lithuania and Estonia, which had backed Poland’s push to set the cap as low as possible, were also on board with the $60 limit. Russian Urals crude was trading at $70.3 a barrel at 1352 GMT.

The G7 price cap on Russian seaborne crude oil is to kick in on Dec. 5, replacing the harsher EU outright ban on buying Russian seaborne crude, as a way to safeguard global oil supply because Russia produces 10 per cent of the world’s oil.

The idea to enforce the G7 cap is to prohibit shipping, insurance and re-insurance companies from handling cargoes of Russian crude around the globe, unless it is sold for less than the price set by the G7 and its allies.

Because the world’s key shipping and insurance firms are based in G7 countries, the price cap would make it very difficult for Moscow to sell its oil for a higher price.