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% below the market price, according to diplomats, Reuters reports.
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.
A senior G7 official said a deal was “very, very close” and should be finalized in the coming days and by Monday at the latest. The official expressed confidence that the price cap would limit Russia’s ability to fight its war against Ukraine.
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% 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 after that, to assess how the scheme is functioning 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.
Russian Urals crude had traded at around $70 a barrel on Thursday afternoon.
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 global oil supply because Russia produces 10% of the world’s oil.
The G7 official expressed optimism that the bloc would also reach 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.