EU reaches deal to cap price on Russian oil at $60 per barrel

The European Union has reached a deal for a $60-per-barrel price cap on seaborne Russian oil, aimed at significantly reducing Moscow’s income and President Vladimir Putin’s ability to continue to finance the war in Ukraine.

On Friday, holdout Poland backed the deal, which stops countries paying more than $60 a barrel. In order to go through, it needed the agreement of all 27 EU states.

The details are due to be published in the EU legal journal on Sunday. The deal will be a vital step for Western sanctions that have aimed to reorder the global oil market to prevent price spikes.

After a last-minute flurry of negotiations, the EU presidency, currently held by the Czech Republic, tweeted that “ambassadors have just reached an agreement on price cap for Russian seaborne #oil.”

Why cap the price of oil?

The price cap, an idea of the Group of Seven (G7) nations, aims to slash Russia’s revenues from selling oil, while preventing a steep increase in international oil prices after an EU embargo on Russian crude takes effect on December 5.

The introduction of the cap means that participating countries will only be allowed to buy oil and petroleum products transported via sea that are sold at or below the price cap.

As the most important shipping and insurance firms are based in G7 countries, the price cap would make it very difficult for Russia to sell its oil at a higher price.

EU sees significant hit to Russian revenues

European Commission President Ursula von der Leyen said the price cap would significantly reduce Russia’s revenues.

However, the chair of the Russian lower house’s foreign affairs committee told the state news agency TASS that the bloc was jeopardising its own energy security.

It was also violating the laws of the market, claimed Leonid Slutsky.

But von der Leyen, the head of the EU’s executive, said on Twitter that “it will help us stabilise global energy prices, benefitting emerging economies around the world”, adding that the cap would be “adjustable over time” to react to market developments.

The White House welcomed the news that the EU was “coming together” on the oil price cap.

“A price cap will help limit Mr Putin’s ability to profiteer off the oil market so that he can continue to fund a war machine that continues to kill innocent Ukrainians,” national security spokesman John Kirby told reporters.

‘Stopping Russia’s war machine’

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

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

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

She said every dollar the cap was reduced amounted to $2bn less for Russia’s war chest.

“It is no secret that we wanted the price to be lower,” Kallas added, highlighting the differences within the EU. “A price between 30-40 dollars is what would substantially hurt Russia. However, this is the best compromise we could get.”

The $60 figure sets the cap near the current price of Russia’s crude, which recently fell below $60 a barrel. There has been criticism that it is 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 slid to $85.48 a barrel on Friday, but could be high enough for Moscow to keep selling even while rejecting the idea of a cap.

Putin has previously warned that Russia would not sell oil under a price cap and would retaliate against nations that implement the measure.

Putin and Biden: Will they, or won’t they?

Meanwhile, it is unlikely that Putin and US President Joe Biden will be speaking anytime soon, about oil or the war in Ukraine.

Biden was not intending to speak to Putin right now, the White House said on Friday, a day after the US leader said he was willing to talk if his Russian counterpart was looking for a way to end the war.

Biden said on Thursday that he was prepared to speak with Putin “if, in fact, there is an interest in him deciding he’s looking for a way to end the war”. But he added that Putin “hasn’t done that yet”.

Kirby told reporters on Friday that “we’re just not at a point now where talks seem to be a fruitful avenue to approach right now”.

Kremlin spokesman Dmitry Peskov reiterated that Putin remains open to talks but the Western demand that Moscow first withdraws its troops from Ukraine is unacceptable.

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