European Union member states have agreed on the level of price caps to be imposed on shipments of Russian refined oil products, which will take effect on Sunday as part of G7 efforts to reduce Moscow’s export profits.
Ambassadors of 27 European Union countries agreed at a meeting on Friday to limit the price of premium products such as diesel at $100 per barrel and cheap products including fuel oil at $45 per barrel.
The cap would allow shipping companies carrying Russian oil products to access western insurance and financing only if they pay less than a predetermined rate.
Sweden’s rotating presidency of the bloc said the agreement was important as “part of the continued response by the EU and its partners to the fight against Russian aggression against Ukraine”.
Other hawkish EU countries including Poland and the Baltics successfully demanded a review of the cap every two months, according to two officials. Other G7 countries, including the U.S., are less inclined toward such a mechanism because of the potential instability in energy markets, officials said.
In the final agreement, the ambassador agreed to the first review by mid-March with the commission considering the impact of the cap both on the Russian budget and member states, according to the draft of the proposal seen by the Financial Times. It will also take into account the effects on the market “including possible turbulences”, the document said.
That cap compares to current diesel market prices of about $110-$120 per barrel. High-quality refined fuels such as diesel and gasoline are almost always more expensive than crude oil, which sells for close to $80 a barrel, due to the additional costs of refining and handling.
But since the full-scale invasion of Ukrainian diesel has mainly increased because Russia is Europe’s largest external fuel supplier, while many European buyers have turned away.
Congestion in the diesel market has raised the question of whether EU buyers will be able to quickly replace the barrels they once got from Russia once the embargo was imposed. The relatively small discount below the price cap for diesel is a reflection of concerns about tightness in the global market, according to members of the G7 coalition.
The $60-a-barrel price cap on Russian crude oil imposed by the EU in December is also under scrutiny every two months. Led by the US, it was agreed after similar pressure from central and eastern European capitals who said the level should be adjusted regularly to reduce Russian war money.
A senior US Treasury official has defended the crude oil price cap mechanism against criticism that it will not change Russia’s behavior or damage the economy.
“Our goal is not to crash the Russian economy. Our goal is to force the Kremlin to choose between supporting the economy and paying for the war,” the official said.
Meanwhile, oil prices have not risen after the embargo as some analysts had predicted, the official said.
“We have also seen positive signs that the oil price cap supports the second objective of promoting stable energy. [supply]”said a Treasury official, adding that global oil prices are now lower than they were before the crude oil ban began in early December.
One EU diplomat said the cap was a “balanced restrictive measure [that] will keep the price of oil and its derivatives low enough to reduce Russia’s income while ensuring access to third countries”.
Debate among the 27 European Union capitals over the level of the cap has been exacerbated by calls from some countries to also tighten trade sanctions against Belarus, Moscow’s key ally and military backer in the war.
In an effort to reach an agreement on the price cap, the debate on Belarus sanctions has been diverted to discussions this month on a new package of sanctions against Russia, two officials said.