BRUSSELS, Dec 1 (Reuters) – European Union governments tentatively agreed on Thursday to a cap of $60 a barrel for Russian oil transported by sea – an idea of the Group of Seven (G7) countries ) – with an adjustment mechanism to keep the cap 5% below the market price, according to diplomats and a document seen by Reuters.
The deal still needs to be approved by all EU governments in a written procedure by Friday. Poland, which had pushed for the cap to be as low as possible, had not confirmed on Thursday evening whether it would back the deal, a European diplomat said.
EU countries have wrangled for days over the details of the price cap, which aims to reduce Russia’s revenue from oil sales, while preventing a spike in global oil prices after entry. into force of an EU embargo on Russian crude on December 5.
It will allow countries to continue importing Russian crude oil using Western insurance and shipping services as long as they pay no more per barrel than the agreed limit.
The initial G7 proposal last week called for a price cap of $65-$70 a barrel with no adjustment mechanism.
A senior G7 official said a deal was “very, very close” and should be finalized in the coming days and no later than Monday. The official said he believed the price cap would limit Russia’s ability to wage war against Ukraine.
G7 officials had been watching oil markets closely when crafting the price cap mechanism and seemed “pretty comfortable” with it, the official said.
Earlier, US Treasury Assistant Secretary Wally Adeyemo told the Reuters NEXT conference in New York that the
The $60 cap was part of the bloc’s talks and would limit Russian revenue.
Since Russian Urals crude was already trading lower, Poland, Lithuania and Estonia dismissed the higher price of $65-$70 a barrel as not achieving the main objective of reduce Moscow’s ability to finance its war in Ukraine.
“The cap price is set at $60 with a provision to keep it 5% below the market price of Russian crude, based on IEA figures,” an EU diplomat said.
REGULAR REVISIONS
An EU document seen by Reuters showed that the price cap would be reviewed in mid-January and every two months thereafter, to assess the functioning of the system and respond to any “turbulence” in the oil market that would result.
The document says a 45-day “transition period” would apply to vessels carrying crude oil of Russian origin loaded before December 5 and unloaded at its final destination before January 19, 2023.
Russian Urals crude was trading at around $70 a barrel on Thursday afternoon.
The G7 price cap on Russian maritime crude oil is due to come into force on December 5, replacing the EU’s outright ban on buying Russian maritime crude, to protect global oil supplies, as Russia produces 10% of the world’s oil.
The idea of enforcing the G7 cap is to prohibit shipping, insurance and reinsurance companies from handling shipments of Russian crude around the world unless it is sold at a price lower than the price set by the G7 and its allies.
Since the world’s major transport and insurance companies are based in G7 countries, the price cap would make it very difficult for Moscow to sell its oil at a higher price.
The G7 official expressed optimism that the bloc would also reach an agreement on a price cap and exemptions for Russian refined petroleum products before February 5, when an EU ban banning such imports will enter in force.
Reporting by Jan Strupczewski and Kate Abnett; additional reporting by Andrea Shalal and David Lawder in New York; Editing by David Goodman, Nick Macfie, Lisa Shumaker and Deepa Babington
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