Europe agrees to cap the price of Russian oil at $60 a barrel | Popgen Tech

London
CNN Business
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The European Union reached a consensus on the price at which Russian oil should be capped just days before the ban on most imports takes effect.

News of the deal, which needed approval from holdout Poland, was confirmed on Twitter by European Commission President Ursula von der Leyen, marking an important milestone in the West’s efforts to punish President Vladimir Putin without adding to the stress on the world economy.

“Today the European Union, the G7 and other global partners agreed to impose a global price cap on seaborne oil from Russia,” von der Leyen said, adding that it would strengthen sanctions against Russia, reduce Moscow’s revenues and energy markets will stabilize by allowing EU-based operators to send the oil to third-party countries provided it is priced below the cap.

The bloc’s 27 member states agreed on Friday to set the cap at $60 a barrel, an EU official with knowledge of the situation told CNN on Friday.

The West’s biggest economies agreed earlier this year to set a price cap after the United States backed out, promising to iron out the details by early December. But institution a number was difficult.

Capping the price of Russian oil between $65 and $70 a barrel, a range previously under discussion, would not have caused much pain for the Kremlin. Urals crude, Russia’s benchmark, was already trading at or near that range. EU countries such as Poland and Estonia have pushed for the limit to be lower.

“Today’s oil price cap deal is a step in the right direction, but it’s not enough,” Estonian Foreign Minister Urmas Reinsalu tweeted Friday. “Intention is right, delivery is poor.”

A price of $60 represents a discount of nearly $27 to Brent crude, the global benchmark. Ural has traded at a discount of about $23 in recent days. Reuters reported that the EU deal included a mechanism to adjust the level of the cap to ensure it is always 5% below the market rate.

The risk of settling for a lower price is that Russia could retaliate by cutting its output, which would rattle markets. Russia has previously warned that it will stop supplying countries that adhere to the cap.

With EU countries in agreement, the last remaining hurdle to a wider G7 deal has been lifted. A top US Treasury Department official said Thursday that $60 would be acceptable.

“We continue to believe that the price cap will help limit Mr. Putin’s ability to profit from the oil market so that he can continue to fund a war machine that continues to kill innocent Ukrainians,” said John Kirby, coordinator of the National Security Council for strategic communications, told reporters. .

“We think that the $60 per barrel is appropriate and we think it will have that effect,” Kirby added.

The price cap is designed to be enforced by companies that provide shipping, insurance and other services for Russian oil. If a buyer has agreed to pay more than the limit, they will withhold those services. Most of these firms are based in Europe or the United Kingdom.

Investors are already on edge, with the European Union’s embargo on Russian oil traveling by sea coming into effect on Monday. Confusion over the impact of that measure, along with lingering questions about the price cap, has left traders unsure.

“There is so much uncertainty and doubt and lack of clarity about the policy that nobody is really confident about how to act,” says Richard Bronze, head of geopolitics at research firm Energy Aspects.

Oil prices have fallen sharply since the summer as China’s coronavirus lockdowns and global recession fears hurt demand. OPEC and Russia announced a major production cut in October, but it had little sustained impact on prices. The EU embargo and attempts to set a price cap could start to push them higher again.

– Chris Liakos and Betsy Klein contributed to this article.