Ukraine’s allies agree on price cap for Russian oil

An elaborate U.S.-led plan to limit what Russia can charge for its oil exports is set to cap the price of Russian crude at $60 a barrel, European Union diplomats agreed Friday.

The threshold, which was settled on after protracted negotiations, is likely to make a small dent in the Kremlin’s energy revenue and, the White House hopes, help avert a global oil shock.

The deal was heralded by the EU’s executive body, and an official announcement by the Group of 7 industrial nations is expected by Sunday.

“This price cap has three objectives: First, it strengthens the effect of our sanctions. Second, it will further diminish Russia’s revenues. And thirdly, at the same time, it will stabilize global energy markets,” said Ursula von der Leyen, president of the European Commission, shortly after the deal became final.

Von der Leyen said the agreement would help emerging and developing economies that rely on Russian oil by ensuring that crude continues to flow. “And it will be adjustable over time so that we can react to market developments,” she added.

The United States praised the agreement and said it would curtail Russia’s ability to fund the war.

“Together, the G-7, European Union and Australia have now jointly set a cap on the price of seaborne Russian oil that will help us achieve our goal of restricting Putin’s primary source of revenue for his illegal war in Ukraine while simultaneously preserving the stability of global energy supplies,” said Treasury Secretary Janet Yellen.

The price threshold reflects what American officials have long said is their primary goal in pushing the plan: to keep millions of barrels of Russian oil flowing to the global market as a new wave of European sanctions on Russian oil exports takes effect, avoiding a sudden contraction in supply that could send gasoline and heating fuel prices soaring in the United States and around the world.

The limit of $60 a barrel seeks to lock in the steep discount that buyers of Russian oil are now able to pay relative to other sources of oil on the world market.

While not dramatically slashing Russian export revenue, which is crucial to its war effort in Ukraine, it could still dent Russia’s finances. The cap will come with light-touch enforcement, but European allies agreed it would be followed swiftly with a fresh round of sanctions against Russia.

Settling on the price has not been easy. EU ambassadors in Brussels met many times over the past two weeks to discuss the cap, with some countries arguing for a much lower price than $60 and others urging a higher cap. They settled on a price that reflects what Russia has recently sold its oil to countries like India and China for: between $60 and $65 a barrel.

Oil traders appeared to view the plan as a sign that an EU embargo on Russian oil imports, which takes effect Dec. 5, is unlikely to knock much, if any, Russian oil off the global market. Global oil prices fell on news of the cap and are down about 10 percent from a month ago.

Biden administration officials call that proof the cap was already working to deny Russia the premium oil prices it enjoyed earlier this year.

EU diplomats agreed the price should be reviewed every two months, or more frequently if needed, by a committee of policymakers from G-7 countries and allies. The first review would happen Jan. 15, and the goal is to keep the cap at least 5 percent lower than the price Russian oil is being traded at the market, officials said.

This approach will ensure that fluctuations in the market price, using the International Energy Agency’s price as a bench mark, will be followed by fluctuations in the price cap.

The details were provided by Poland’s EU ambassador, Andrzej Sados, and other EU diplomats and officials who spoke on condition of anonymity because they were not authorized to brief the media.

That plan places the burden of putting into effect and policing the price cap on the businesses that help sell the oil: global shipping and insurance companies, which are mostly based in Europe.

The EU embargo on Russian oil includes a ban on European services to ship, finance or insure Russian oil shipments to destinations outside the bloc, a measure that would disable the infrastructure that moves Russia’s oil to buyers around the world.

Some 55 percent of the tankers that transport Russian oil out of the country are Greek-owned, for example, according to maritime data and analysis by the Institute of International Finance.