The EU reached a consensus: set the price cap on Russian oil exports at $60 a barrel

Oil pipeline between Germany and Russia (data photo)

WASHINGTON —After painstaking internal negotiations and negotiations, EU countries have finally reached a consensus on a price ceiling for Russian oil exports to countries outside the EU, while the EU itself will completely ban the import of Russian oil and other products from December 5.

The G7 originally proposed capping the price of Russian oil exports by the sea at between $65 and $70, but during the discussions in EU countries, some EU officials, especially Poland and other pro-Ukrainian countries, believed that the price ceiling of $65 to $70 a barrel proposed by the G7 was too high and should be significantly lowered to really limit Russia’s oil revenues.

The U.S. and Ukraine’s allies are pushing for this step in order to prevent Russia from using the profits from oil exports to finance its war of aggression against Ukraine.

Price restrictions on Russian oil imports must be finalized by December 5, as the EU boycott of Russian oil imports will begin from this date.

European Commission President Ursula von der Leyen’s first Twitter post confirming the EU’s consensus on this otherwise contentious issue is significant, allowing the West to further punish Russian President Vladimir Putin without adding trouble to the global economy.

“Today, the European Union, the Group of Seven major industrialized nations, and other global partners agreed to impose a global price cap on oil exported by sea from Russia,” von der Leyen said. In particular, she pointed out that allowing EU shipping companies to export Russian oil below the price ceiling to third parties, will strengthen sanctions against Russia, reduce Russian revenues, and also stabilize the global energy market.

CNN and other media quoted EU officials familiar with the matter as saying that the 27 member states of the European Union reached a consensus on Friday to set the price cap on Russian oil exports at $60 a barrel.

The United States and Europe have imposed comprehensive sanctions and boycotts on Russia after the outbreak of Russia’s invasion of Ukraine, divesting Russia from the international financial market, and making oil exports, Russia’s largest source of foreign exchange earnings, encounter final accounting and transportation difficulties. Imposing price restrictions on Russian oil exports to countries outside the EU is fraught with complexity and uncertainty because restricting and reducing Russian oil exports could lead to an oil crunch, leading not only to higher oil prices but also to a spike in global inflation.

With Urals crude oil, the benchmark for Russian oil prices, trading at $60 to $100 a barrel for the past three years, and Russian oil prices at around $65 to $75 a barrel in the past three months, already close to the price ceiling proposed by the Group of Seven major industrial groups, countries such as Poland and Estonia within the EU have strongly pushed the price ceiling lower.

“Today’s agreement on oil price caps is a step in the right direction, but it is not enough,” Estonian Foreign Minister Urmas Reinsalu tweeted Friday. “The intentions are good, but the measures are weak.”

According to CNN, the $60 per barrel oil price ceiling is about $27 per barrel lower than the price of Brent crude oil, the benchmark for global oil prices. The price of Urals crude oil has also been about $23 per barrel lower than the price of Brent crude oil in recent days. According to Reuters, the EU’s oil price cap agreement also contains a clause that adjusts the price cap at any time to make it about 5% below the market price.

Limiting the price of Russian oil exports too low could lead to retaliation from Moscow, which could disrupt global energy markets by reducing production. Russia has previously warned that it will stop accepting and sticking to oil supplies from countries with price caps.

“We continue to believe that the price cap will limit Mr. Putin’s ability to profit from the oil market and then use it to fund the war machine to continue killing innocent Ukrainians,” John Kirby, the White House NSC strategic communications coordinator, told reporters.

“We think $60 a barrel is appropriate, and we think it will work,” Kirby added.

The price cap is effective because most of the companies that provide shipping, insurance, and other services for Russian oil exports are concentrated in the EU or the UK. And when an oil buyer buys Russian oil at a price above the price cap, these EU or British companies can refuse to provide services such as shipping or insurance.

Russia has been strongly opposed to the West setting a price cap on its oil exports. After the EU reached a consensus on a price cap on Russian oil exports, the Russian embassy in the United States posted on social media to attack the West for “reinventing” free market principles, stressing that Russian oil will continue to be popular despite the price limit.

“Despite the current flirting with dangerous and illegal agreements, we believe there will still be demand for Russian oil,” a post from the Russian embassy in the United States said.