Brussels / Washington The EU, together with international partners, wants to force Russia to sell oil below the market price to buyers in other countries. An agreement reached by government representatives on Friday provides for an initial price limit of 60 US dollars per barrel, as confirmed by Estonian Prime Minister Kaja Kallas in the evening. Finally, Poland gave its approval.
The price of around 57 euros per 159 liters would then be up to 9 euros below the most recent market price for Russian Urals crude oil. According to the plans, it will apply from Monday.
The US government welcomed the EU agreement. “This is good news,” said National Security Council communications director John Kirby.
On the other hand, warnings and criticism came from Russia. “The EU is endangering its own energy security,” said prominent Russian foreign politician and Duma deputy Leonid Slutsky, according to the TASS state agency. And all this to “satisfy the ambitions of overseas partners,” he said, referring to the United States.
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The group of seven most influential Western countries, G7, and Australia have also set a price cap of $60 per barrel for Russian oil transported by sea. The G7 said the oil price cap would come into effect on December 5th. This should be formally confirmed at the weekend.
“The coalition of countries adopting an oil price cap may also consider other measures to ensure the effectiveness of the price cap,” the statement said.
European Commission President Ursula von der Leyen said the price cap will significantly reduce Russia’s revenues. “It will help us stabilize global energy prices. This will benefit emerging markets around the world,” von der Leyen wrote on Twitter on Friday evening.
US Treasury Secretary Janet Yellen welcomed the price cap in a statement. “With the Russian economy already shrinking and the budget tightening, the price cap will cut Putin’s main source of income immediately.”
In order to enforce the price cap, it should be regulated that in future important services for Russian oil exports may only be provided with impunity if the price of the exported oil does not exceed the price cap.
Western shipping companies could use their ships to continue transporting Russian oil to third countries such as India. The regulation should also apply to other important services such as insurance, technical assistance and financing and brokerage services.
Price cap supplements oil embargo
In order to be able to react to market developments, the plans envisage reviewing the price cap every two months. It should always be at least five percent below an average price determined by the International Energy Agency (IEA). In addition to the EU, countries such as the USA, Great Britain, Canada, Japan and Australia are involved in the project.
The price cap is intended to complement the oil embargo against Russia that the EU decided in June. Among other things, this provides for a ban on the purchase, import or forwarding of crude oil and certain petroleum products from Russia to the EU. The restrictions apply from December 5 for crude oil and from February 5, 2023 for other petroleum products. However, there are some exceptions, for example for Hungary.
The member states had taken the fundamental decision to introduce the price cap for Russian oil in October – after the G7 had previously launched a corresponding initiative.
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Recently, however, the negotiations on the specific upper price limit turned out to be more difficult than expected. During the talks, Poland, initially with the support of the Baltic states, called for a price cap of under $30 per barrel to be set and thus to remain at the estimated production costs of $20 to $40 per barrel. The government in Warsaw was supported by Ukraine. President Volodymyr Zelenskiy said last week that a price of up to $30 would be possible.
However, countries such as Greece and Malta were particularly opposed to such a low price limit. They fear that setting the price limit too low could cause shipping companies based in their countries to go bankrupt because Russia could refuse to sell its crude oil at a very low price. A Russian refusal to submit to the coercive regime could also trigger turbulence and price increases on the international markets.
After the agreement in Brussels, Estonia’s Prime Minister Kallas announced that part of the deal would also be the rapid adoption of a ninth package with other sanctions against Russia. According to EU officials, there should already be new coordination talks at the weekend.
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