The European Union (EU) has reached a consensus on the price at which to cap Russian oil just days before its ban on most imports comes into force.
Ursula von der Leyen, the president of the European Commission, confirmed the pact’s news on Twitter. It marks an important step in EU’s efforts to punish President Putin without placing additional strain on the world economy. The deal had required support from holdout Poland.
“Today, the European Union, the G7 and other global partners have agreed to introduce a global price cap on seaborne oil from Russia,” von der Leyen said.
She further added that it would strengthen sanctions on Russia, diminish Moscow’s revenues and stabilize energy markets by allowing EU-based operators to ship the oil to third-party countries provided it is priced below the cap.
The bloc’s 27 member states agreed Friday to set the cap at $60 a barrel, an EU official told newsmen.
Following American pressure, the major economies of the West decided to adopt a price cap earlier this year; and promised to work out the details by early December. But choosing a number had been challenging.
The Kremlin wouldn’t have suffered much if the price of Russian oil had been capped at $65 and $70 per barrel; a range that was previously under consideration. Russian benchmark Urals crude has already been trading in or near that area. Poland and Estonia, two EU nations, have advocated for a lower cap.
The risk of settling on a lower price is that Russia could retaliate by slashing output, which would disrupt markets. Russia has previously threatened to cease supplying nations who uphold the cap.
Oil prices have dropped sharply since the summer, as China’s coronavirus lockdowns and global recession fears have dented demand. OPEC and Russia announced a big production cut in October, but that had little sustained impact on prices. The EU embargo and efforts to set a price cap could begin to push them higher again.