The EU reached a consensus on the price at which Russian oil can be capped days before the entry into force of the ban on most imports.
News of a deal that needed the approval of a reluctant Poland confirmed on twitter European Commission President Ursula von der Leyen, marking a major milestone in the West’s efforts to punish President Vladimir Putin without adding to the burden on the global economy.
“Today, the European Union, the G7 and other global partners have agreed to impose a global price ceiling on offshore oil from Russia,” von der Leyen said, adding that this would increase sanctions on Russia, reduce Moscow’s revenues and stabilize energy markets through allowing operators from the EU to supply oil to third countries, provided that the price for it is below the marginal one.
On Friday, the bloc’s 27 member countries agreed to set a ceiling at $60 a barrel, an EU official familiar with the situation told CNN on Friday.
The largest economies in the West agreed earlier this year to set a price ceiling after lobbying from the United States and promised to discuss the details by early December. But the setting was the number turned out to be difficult.
Limiting the price of Russian oil between $65 and $70 a barrel, the previously discussed range, would not cause the Kremlin much pain. Urals crude, the Russian benchmark, is already trading within or close to this range. EU countries such as Poland and Estonia have pushed for lowering the upper limit.
“Today’s agreement to limit oil prices is a step in the right direction, but it is not enough,” said the Estonian Foreign Minister. Urmas Reinsalu wrote on Twitter. Friday “The intention is right, the delivery is weak.”
The price of $60 represents a discount of almost $27 compared to Brent crude, the global benchmark. Urals has been trading at a discount of about $23 in recent days. Reuters reported that the EU agreement includes a mechanism to adjust the cap level to always be 5% below the market rate.
The risk of a lower price is that Russia could retaliate by cutting production, which will roil the markets. Earlier, Russia warned that it would stop deliveries to countries that adhere to the restriction.
As EU countries came together, the last remaining obstacle to a broader G7 agreement was removed. A senior US Treasury Department official said on Thursday that $60 would be acceptable.
“We continue to believe that the price cap will help limit Mr. Putin’s ability to cash in on the oil market so that he can continue to fund a war machine that continues to kill innocent Ukrainians,” John Kirby, National Security Council strategic communications coordinator, told reporters.
“We think $60 a barrel is appropriate and we think it will have that effect,” Kirby added.
The price ceiling is intended to enforce compliance by companies that provide shipping, insurance and other services for Russian oil. If the buyer agreed to pay more than the limit, he will refuse these services. Most of these firms are based in Europe or the UK.
Investors are already on edge: the EU embargo on shipping Russian oil will come into force on Monday. Confusion about the impact of this measure, along with unresolved questions about the price cap, has alarmed traders.
“There is so much uncertainty, doubt and lack of clarity in politics that no one is sure how to proceed,” said Richard Bronze, head of geopolitics at research firm Energy Aspects.
Oil prices have fallen sharply since the summer as China’s coronavirus lockdown and fears of a global recession weighed on demand. OPEC and Russia announced big cut in production in october, but this had little effect on prices. The EU embargo and attempts to set a ceiling on prices could lead to their rise again.
— Chris Liakos and Betsy Klein contributed to this article.