By Laurence Norman and Andrew Duehren
WASHINGTON (Dow Jones) — The Group of Seven industrialized countries (G7) has agreed to cap the price of Russian crude oil at $60 a barrel, driving an unprecedented sanction against one of the world’s largest oil producers. The deal between Australia and the G-7 countries – Germany, France, Italy, Japan, Canada, Britain and the US – came just hours after the European Union backed the figure.
Poland, which had resisted a lower cap for the past few days, agreed to a price of $60 a barrel on Friday, clearing the way for the deal. The EU Commission originally proposed setting the upper limit at between 65 and 70 dollars per barrel. The cap prohibits Western companies from insuring, financing or shipping Russian oil unless the oil sells for less than $60 a barrel.
The US and its allies designed the system to squeeze Moscow’s oil revenues while keeping Russian crude – a key part of the world supply – on the market. It aims to use the western concentration of maritime services to constrain Moscow’s ability to wage a war in Ukraine.
“As the Russian economy is already shrinking and the budget is tightening, the price cap will immediately limit Putin’s (Russian President Vladimir) main source of income,” the US Treasury Secretary said Janet Yellenthe lead architect of the plan, in a statement.
Russian politicians have threatened to halt oil exports in response to the cap, saying the sanctions distorted market dynamics and could lead to a spike in world prices. However, markets on Friday showed no signs that Russia had started to withdraw its oil from world markets.
Brent crude, the world oil benchmark, was trading at around $85 a barrel on Friday, falling following the EU deal. Analysts and US government officials say the price of Russian crude oil, also known as the Urals, is opaque and difficult to ascertain. Data provider Refinitiv put the price of Urals at around $69 a barrel on Thursday, while Argus Media put the price at around $48 a barrel on Wednesday in the Baltic Sea port of Primorsk.
Western government officials believe a $60 a barrel cap would still eat into Russia’s gains and have said they could lower the price over time. “The EU agreement on an oil price cap, coordinated with the G-7 and other countries, will significantly reduce Russia’s revenues,” European Commission President Ursula von der Leyen said in a tweet on Friday. “It will help us stabilize global energy prices, which will benefit emerging markets around the world.”
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December 03, 2022 02:51 ET (07:51 GMT)