EU agrees on $60/barrel price cap on Russian oil

Restrictions an attempt to squeeze Kremlin’s crude oil revenues

The European Commission, the European Union’s executive body, has asked the bloc’s 27 member states to approve a price cap on Russian oil of $60 a barrel, according to people familiar with the matter.

Under the plan, the Group of Seven and Australia would ban the provision of maritime services for Russian oil shipments unless the crude is sold at or under the level.

The price cap is part of the West’s attempt to squeeze the Kremlin’s oil revenues while keeping global oil supplies steady and avoiding an increase in energy prices. It has been crafted as a way to try to allow Russian oil to sate global markets without Moscow getting the full benefit of its sales.

All 27 member states need to approve the level, which would be reviewed every two months starting in midjanuary. But members have largely coalesced around a cap of $60 a barrel to such a degree that the commission believes it can get a deal at this level, the people said. The G-7 would also need to approve the price.

Senior officials from the bloc’s member states began discussing the proposal on Thursday afternoon. A decision is expected later Thursday, with the officials saying Polish officials requested time to check the commission’s plan with Warsaw.

Under the system, companies shipping Russian oil would still be able to access EU insurance and brokerage services if they sell the oil at or under the price-cap level.

The cap is designed to take effect on December 5, when a separate EU embargo on Russian vessel-bound crude oil imports enters into force.

US officials had worried that the embargo, combined with the threat of cutting off EU insurance and other services for vessels shipping Russian oil, could send oil prices upward, generating fresh revenue for the Kremlin’s war machine.

The cap would set Russian crude prices significantly below the international benchmark, called Brent, which traded at just under $88 a barrel Thursday. Russian crude trades at a significant discount to that, but since many buyers have shunned it altogether, price transparency has been more difficult.

In some cases, Russian crude has already been trading well under $60 a barrel. Russia’s Urals crude fetched $48 a barrel when exported from the Baltic port of Primorsk on Wednesday, according to Argus Media, which assesses prices in commodity markets.

According to text of the EU proposal seen by The Wall Street Journal, at every review the level should be “at least 5% below the average market price for Russian oil and petroleum products.” The International Energy Agency will advise on the reference price.

EU ambassadors have spent hours negotiating over final approval of the price-cap level over the past week, but several EU officials have voiced doubts about the effectiveness of a mechanism whose price cap is currently above the price of some Russian oil exports.