European Union member states agreed to impose a $60 cap on global purchases of Russian oil after Poland dropped its objections to a controversial deal to cut the Kremlin’s fossil fuel revenues.
Warsaw concluded the agreement on the cap, after demanding to further reduce the income of Moscow to increase its low level. Its support means the union will take the initiative by December 5, when a ban on Russian oil imports to the EU comes into force.
The cap, which is set to be adopted by the G7 countries and some allies, is designed to keep Russian oil flowing to countries like India and China, but with less profit to Moscow.
It is set to have global reach as Russian oil importers, who rely on insurance and shipping services from companies in the EU and other G7 countries, must adhere to price caps.
However, Russia has said it will not sell oil to any of the countries participating in the cap, and India and China have not yet said they will implement it. Russia is expected to rely on tankers to operate without Western insurance, although traders have warned that its exports could fall if it does not have access to enough ships.
Russian oil is already trading at a huge discount to the international Brent benchmark.
Andrzej Sados, Poland’s permanent representative to the European Union, said: “We can formally agree to this decision,” adding that the official publication of the law will probably take place at the end of the week.
The agreement was reached after months of negotiations.
U.S. Treasury Secretary Janet Yellen, one of the forces behind this year’s rate hike plan, welcomed the deal and praised Washington’s partners in the EU, saying it would help us reach our goal of capping the main source of income. Putin will help his illegal war on the EU. At the same time, Ukraine maintains the stability of the global energy supply.”
This is at least lower than the initial price of $70 proposed by the European Commission, after demands from Poland and other member states to lower it. On Friday, Brent oil traded at around $86.
Warsaw gave its approval after Brussels agreed to speed up work on a new package of sanctions against Moscow that would include measures proposed by Poland. “We wanted to be absolutely sure . . . that we are working on a new, painful and costly sanctions package for Russia,” Sados said.
The cap agreement also includes a provision that the final price for Russian oil be regularly revised to be “at least 5 percent” below the average market price of Russian oil.
The initiative to cap prices was backed by the US, which wants to continue exporting Russian oil to avoid a global shortage that would drive up oil prices. The US hopes that India and China can still use the existence of a price cap to negotiate bigger discounts.
Yellen said the new price cap would particularly benefit low- and middle-income countries, which are “already bearing the brunt” of inflation in energy and food prices as a result of Russia’s aggression.
“Whether these countries purchase electricity within or outside the cap, the cap will allow them to negotiate deeper Russian oil discounts and enjoy greater stability in global energy markets,” he said in a statement. .
Some EU countries initially demanded a level of at least 30 dollars, but Brussels authorities feared that Moscow would reduce its exports.
A senior Treasury official also played down the possibility that Russia could soon scale back the system to evade price caps and offer its own insurance and services to carriers.
“If Russia spends money to build itself [shipping and insurance] ecosystem that helps us. . . with our first target because they will have less money to fight their war in Ukraine,” the official said.
The country’s finance ministry said that oil and gas turnover is likely to account for 42 percent of Russia’s income this year, which is about 11.7 trillion rupiah ($191 billion).
Additional reporting by David Sheppard and Derek Brower