The EU Overcomes The Blockade Of Poland And Sets a Ceiling Of 60 Dollars Per Barrel For Russian Oil

The governments of the European Union have reached an agreement for a ceiling of 60 dollars per barrel for the price of Russian oil transported by sea and sold to third countries. The measure stems from a G7 proposal, with an adjustment mechanism to keep the ceiling at 5% below the market price, according to diplomats. and a document seen by Reuters. The idea of ​​the cap is to prohibit transport, insurance and reinsurance companies from handling shipments of Russian crude around the world, unless it sells for less than the price set by the G7 and its allies.

EU leaders agree to a partial embargo on Russian oil to overcome Orbán's veto

EU leaders agree to a partial embargo on Russian oil to overcome Orbán’s veto


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Because the world’s biggest transport and insurance firms are based in the G7 countries, the price cap would make it very difficult for Moscow to sell its oil at a higher price.

The agreement won the approval of all EU governments in a written procedure on Friday afternoon, while the EU embargo on Russian oil by sea agreed in May comes into force on Monday, December 5.

Poland, which had pushed for the ceiling to be as low as possible, had not confirmed whether it would support the deal.

EU countries have wrangled for days over the details of the price cap, which is intended to reduce Russia’s revenue from oil sales, while trying to prevent a rise in world oil prices once the oil embargo the EU on Russian crude enters into force on December 5.

The proposal allows third countries to continue importing Russian crude using Western maritime insurance and services – from EU and G7 countries – as long as they do not pay more per barrel than the agreed limit. The G7’s initial proposal last week was for a maximum price of $65-70 per barrel with no adjustment mechanism.

Poland and the Baltics have called for measures to put more pressure on Moscow’s revenues, but the ceiling that appears to be agreed is above the prices at which most Russian crude is already trading.

The risk to oil markets is that if the cap is deemed too low, Moscow may follow through on a threat to shut down production, driving up world crude prices.

Poland and the Baltic countries have called in parallel to move forward on a new EU sanctions package. Brussels this week has tabled proposals to address sanctions circumvention, using frozen assets and holding Russia accountable for its war of aggression against Ukraine.

Greece and other shipping nations, by contrast, had pushed for a higher price to maintain trade in Russian oil. Separately, they had been seeking guarantees that the shipping industry will not be discriminated against by international competitors as a result of the cap.

Western controlled services

The plan calls for participating countries not to allow Western-controlled services, including insurance, finance, brokerage and shipping, to oil shipments priced above the cap.

To secure those services, oil buyers would “certify” suppliers saying they bought Russian oil at or below the cap.

Shipping service providers will not be responsible for false pricing information provided by buyers and sellers of Russian oil.

G7 officials believe the plan will work because the London-based International Group of Protection and Indemnity Clubs provides marine liability cover for about 95% of the world’s oil shipping fleet, reports Reuters.

Traders point to parallel fleets that can carry Russian oil using Russian and other non-Western insurance that could be used to circumvent sanctions enforcement efforts, while it is unclear how many ports will accept Russian-insured ships.

With Russian Ural crude already trading lower, Poland, Lithuania and Estonia rejected the higher price of 65-70 euros per barrel as failing to achieve the main goal of reducing Moscow’s ability to finance its war in Ukraine.

An EU document seen by Reuters showed that the maximum price would be reviewed in mid-January and every two months after that, to assess how the scheme works and to respond to possible “turmoil” in the oil market that occurs as a result.

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

The price cap for Russian seaborne crude will take effect on December 5, in parallel with an EU ban on buying Russian seaborne crude as a way to safeguard global oil supplies – Russia produces 10% of the world’s oil.

From here, the EU must also agree on a price cap and exemptions for Russian refined oil products by February 5, when an EU ban on such imports takes effect.



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