Seaborne Russian oil will be price capped at US$60 a barrel, EU nations say

Europe needed to set the discounted price that other nations will pay by Monday, when an EU embargo on Russian oil shipped by sea and a ban on their insurance take effect.

The European Union tentatively agreed to a US$60-per-barrel price cap on Russian oil, a key step as Western sanctions aim to reorder the global oil market to prevent price spikes and starve President Vladimir Putin of funding for his war in Ukraine.

After a last-minute flurry of negotiations, the EU presidency, held by the Czech Republic, tweeted that “ambassadors have just reached an agreement on price cap for Russian seaborne #oil.” The decision must still be officially approved with a written procedure but is expected to go through.

Europe needed to set the discounted price that other nations will pay by Monday, when an EU embargo on Russian oil shipped by sea and a ban on insurance for those supplies take effect. The price cap, which was led by the Group of Seven wealthy democracies and still needs their approval, aims to prevent a sudden loss of Russian oil to the world that could lead to a new surge in energy prices and further fuel inflation.

Poland long held up an agreement, seeking to set the cap as low as possible. Following more than 24 hours of deliberations, when other EU nations had signaled they would back the deal, Warsaw finally relented late Friday.

“Crippling Russia’s energy revenues is at the core of stopping Russia’s war machine,” said Estonian Prime Minister Kaja Kallas, adding that she was happy the cap was pushed down a extra few dollars from an original proposal.

She said every dollar on the cap amounted to US$2 billion less for the Russian war chest.

The US$60 figure sets the cap near the current price of Russia’s crude, which recently fell below US$60 a barrel. Some criticize that as not low enough to cut into one of Russia’s main sources of income. It is still a big discount to international benchmark Brent, which traded at about US$87 per barrel Friday, but could be high enough for Moscow to keep selling even while rejecting the idea of a cap.

There is a big risk to the global oil market of losing large amounts of crude from the world’s No. 2 producer. It could drive up gasoline prices for drivers worldwide, which has stirred political turmoil for U.S. President Joe Biden and leaders in other nations. Europe is already mired in an energy crisis, with governments facing protests over the soaring cost of living, while developing nations are even more vulnerable to shifts in energy costs.