European Union governments on Thursday tentatively agreed to set a cap of $60 a barrel on Russian offshore oil – an idea of ​​the G7 – with an adjustment mechanism to keep the cap 5% below the market price, according to data. diplomats and a document seen by Reuters.

The deal still needs the approval of all EU governments through a written procedure by Friday. Poland, which has insisted that the cap be as low as possible, had not confirmed by late Thursday whether it would support the deal, an EU diplomat said.

EU countries have agreed on a price ceiling for Russian oil

EU countries have spent several days discussing the details of the price cap, which aims to reduce Russia’s revenue from oil sales while preventing a sharp rise in global oil prices following the EU’s December 5 embargo on Russian oil.

This would allow countries to continue importing Russian crude oil with the help of Western transport and insurance services as long as they do not pay more than the agreed limit per barrel.

The G7’s initial proposal last week called for a ceiling price of $65-$70 per barrel with no adjustment mechanism.

A senior G7 official said a deal was “very, very close” and should be finalized in the coming days, by Monday at the latest.

The official expressed confidence that the price cap would limit Russia’s ability to wage war against Ukraine.

G7 leaders had been keeping a close eye on oil markets while developing the price cap mechanism and appeared to be “quite happy” with it, the official said.

US Deputy Treasury Secretary Wally Adeyemo said earlier in New York that the $60 limit is part of the bloc’s negotiations and will limit Russia’s revenues.

The mechanism by which it is ensured that Moscow does not collect the market price

With Russia’s Urals URL-E oil already trading at a lower price, Poland, Lithuania and Estonia rejected a higher price of $65-$70 a barrel, saying it did not achieve the main goal of reducing Moscow’s ability to finance the war in Ukraine.

“The price ceiling is set at $60 with the condition of keeping it 5% below the market price of Russian oil, based on IEA data,” the EU diplomat said.

An EU document seen by Reuters shows the price cap will be reviewed in mid-January and every two months thereafter to assess how the system is working and to respond to possible “turbulence” in the oil market that arises as a result.

The document states that a 45-day “transition period” will apply to vessels carrying crude oil of Russian origin that was loaded before December 5 and discharged at its final destination before January 19, 2023.

On Thursday afternoon, Russian Urals crude was around $70 per barrel.

The Russians are unlikely to be able to export without the G7 countries

The G7 price cap on Russian offshore oil is due to come into effect on December 5, replacing the EU’s stricter blanket ban on buying Russian offshore oil to protect global oil supplies, as Russia produces 10% of the world’s oil.

The idea behind the G7 cap is to prevent shipping, insurance and reinsurance companies from handling cargoes of Russian crude around the world unless it is sold at a price lower than that set by the G7 and its allies.

Since the world’s leading shipping and insurance companies are located in the G7 countries, the price cap will make it very difficult for Moscow to sell its oil at a higher price.

The G7 representative expressed optimism that the bloc will also reach an agreement on price caps and exemptions for Russian oil products before February 5, when the EU ban on such imports comes into force.

(article photo: ©Dyshlyuk|Dreamstime.com)