On Friday, the 27 countries of the European Union reached an agreement to cap the price of Russian oil at $60 a barrel, a tool designed by the West to deprive Moscow of funds to finance its war in Ukraine, AFP reported.

The deal, which was drawn up by EU ambassadors in Brussels on Thursday in coordination with their G7 allies, including the US and Britain, as well as Australia, was still awaiting a decision from Warsaw, which gave the go-ahead late on Friday. .

“We can officially approve this decision,” Polish ambassador to the European Union Andrzej Sados said in Brussels.

The proposed mechanism involves a cap of $60 a barrel on the price of Russian oil sold to third countries, on top of the EU embargo that comes into effect on Monday.

Russia has earned 67 billion euros from oil sales to the EU since the war in Ukraine began, while its annual military budget is about 60 billion a year, said Phuc-Vinh Nguyen, an energy expert at the Jacques Delors Institute.

The EU scheme aims to ban companies from providing delivery services (transportation, insurance, etc.) for Russian oil worth more than $60, in order to limit Moscow’s revenue from shipments to countries such as China and India.

The tool is supposed to strengthen the effectiveness of the European embargo, which comes a few months after the one already adopted by the United States and Canada.

Russia is the world’s second largest exporter of crude oil, and without the cap it would be very easy to supply new buyers at market prices.

The G7 countries now provide 90% of the world’s cargo, and the EU is a major player in maritime freight, giving it a strong deterrent, but at the same time risks losing business to competitors.

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.