By Enyichukwu Enemanna
The European Union is set to approve a $60 per barrel price cap on Russian seaborne oil, after Poland on Friday agreed to the EU’s deal, Poland’s Ambassador to the EU, Andrzej Sados has announced.
Sados said the mechanism in the final deal would keep the price cap at least 5% below the market rate.
Following Poland’s approval on Friday, the EU launched a written procedure for all 27 EU countries to formally greenlight the deal, details of which would be published in the EU legal journal on Sunday.
Warsaw had held out on approving the deal to examine an adjustment mechanism to keep the cap below the market price – having pushed in negotiations for the cap to be as low as possible, to slash revenues to Russia and limit Moscow’s ability to finance its war in Ukraine.
The price cap, an idea of the Group of Seven (G7) nations, aims to reduce Russia’s income from selling oil, while preventing a spike in global oil prices after an EU embargo on Russian crude takes effect on Dec. 5.
The G7 price cap will allow non-EU countries to continue importing seaborne Russian crude oil, but it will prohibit shipping, insurance and re-insurance companies from handling cargoes of Russian crude around the globe, unless it is sold for less than the price cap.
Because the world’s key shipping and insurance firms are based in G7 countries, the price cap would make it very difficult for Moscow to sell its oil for a higher price.
The initial G7 proposal last week was for a price cap of $65-$70 per barrel with no adjustment mechanism. Since Russian Urals crude already traded lower, Poland, Lithuania and Estonia pushed for a lower price.
Russian Urals crude had traded at around $67 a barrel on Friday afternoon.
EU countries have wrangled for days over the details, with those countries adding other conditions to the deal – including that the price cap will be reviewed in mid-January and every two months after that, according to diplomats and an EU document seen by Reuters on Thursday.
The document also said a 45-day “transitional period” would apply to vessels carrying Russian crude that was loaded before Dec. 5 and unloaded at its final destination by Jan. 19, 2023.