EU Agrees To Cap Russian Oil Price At $60 Per Barrel

Even as Russian oil exports rose in October – China and India being major markets – the European Union has reached a tentative agreement to cap a price on its seaborne oil in a bid to bring down the country’s export revenues.

EU Agrees To Cap Russian Oil Price At $60 Per Barrel
An oil tanker is seen in the sea outside the Puerto La Cruz Oil Refinery in Puerto La Cruz, Venezuela, July 19, 2018. (Reuters File Photo)

EUROPEAN Union governments tentatively agreed late yesterday 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, according to diplomats and a document seen by Reuters.

The agreement still needs approval from all EU governments in a written procedure by Friday. Poland, which had pushed for the cap to be as low as possible, had as of Thursday evening not confirmed if it would support the deal, an EU diplomat said.

EU countries have wrangled for days over the details of the price cap, which aims to slash Russia's income from selling oil, while preventing a spike in global oil prices after an EU embargo on Russian crude takes effect on December 5.

It will allow countries to continue importing Russian crude oil using Western insurance and maritime services as long as they do not pay more per barrel than the agreed limit.

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

G7 officials had been closely monitoring oil markets during the development of the price cap mechanism and seemed "pretty comfortable" with it, the official said.

Since Russian Urals crude already traded lower, Poland, Lithuania and Estonia rejected the higher $65-70 per barrel price as not achieving the main objective of reducing Moscow's 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," an EU diplomat said.

An EU document seen by Reuters showed the price cap would be reviewed in mid-January and every two months thereafter, to assess the functioning of the scheme and respond to possible "turbulences" in the oil market that occur as a result.

The document said a 45-day "transitional period" would apply to vessels carrying Russian-origin crude oil that was loaded before December 5 and unloaded at its final destination by January 19, 2023.

On Thursday afternoon, Russian Urals crude had traded at around $70 a barrel.

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

The idea to enforce the G7 cap is to prohibit shipping, insurance and reinsurance 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.

The G7 official expressed optimism that the bloc would also reach an agreement on a price cap and exemptions for Russian refined oil products ahead of February 5, when an EU ban barring such imports takes effect.

(With agency inputs)

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