EU member states agree on price cap for Russian oil

European Union member states have agreed on a price cap for Russian oil transported by sea after lengthy negotiations. The Czech presidency announced this on Friday evening.

The Europeans want to force Russia to sell its oil to third countries at a maximum price of $60 a barrel. The recent market price for a barrel of Ural oil from Russia was around $65. The measure comes on top of the introduction of a European embargo on Russian oil imports by sea that takes effect on Monday.

Both measures should hit the financing of Russia's war machine in Ukraine. For instance, Russia, the second most important exporter of crude oil, has received 67 billion euros from oil sales to the European Union since the invasion began. That is more than the Kremlin's annual military budget. ​

Specifically, member states are banning European companies from providing any more services to transport Russian oil sold at more than $60 a barrel. The measure is being rolled out in coordination with international partners in the lap of the G7: the United States, the United Kingdom, Canada and Japan.

Western countries can have an impact on Russian oil supplies to third countries like India and China because they hold important framing services. Currently, for example, the G7 countries provide insurance services for 90 per cent of global cargo. The EU is also a major player in maritime cargo transport.

So at the same time, it remains possible for Western shipping companies and other service providers to bring Russian oil to third countries, as long as the oil is sold at lower prices. This should stabilise energy markets somewhat and give poorer countries relief. "This price cap will directly benefit emerging economies and developing countries," assured European Commission President Ursula von der Leyen in a reaction to the agreement.

To respond to market developments, the price ceiling will be reviewed every two months. The price of Russian oil as quoted by the International Energy Agency (IEA) will be used as a reference. The ceiling must always remain at least five per cent below that reference price.

The principle of a price ceiling had long been the subject of consensus at European level, but Poland had been trying to push through a lower maximum price in recent days. With support from the Baltic states, the country was pushing for a ceiling of $30 a barrel, a level close to the cost of production, estimated between $20 and $40 a barrel.

"Every dollar counts. Every dollar we can negotiate down means an estimated two billion dollars less revenue for Russia," Estonian Prime Minister Kaja Kallas explained. In the end, the Poles and the Balts gave up their attempt on Friday. As part of the agreement, Kallas said a ninth sanctions package against Moscow would be fast-tracked, however.

A price ceiling in the $30 range met with objections from countries with a large shipping industry, such as Greece and Malta. They feared that too low a price could encourage shipping companies to relocate if Russia refuses to sell its oil at a lower price.

^{Czech Minister for Industry and Trade Jozef Sikela at a news conference following an extraordinary European Union (EU) energy council on the energy crisis at the European Council headquarters. © BELGA HANS LUCAS}