EU agrees price caps on Russian oil products

EU member states have agreed on the level of price caps to be imposed on shipments of Russian refined oil products, which will come into effect on Sunday as part of a G7 effort to cut Moscow’s export revenues.

Ambassadors of the 27 EU states agreed at a meeting on Friday to limit the price of premium products such as diesel at $100 a barrel and that of low-end products including fuel oil at $45 a barrel.

The caps will allow shipping companies carrying Russian oil products to access western insurance and financing only if they pay less than the prescribed level.

The Swedish rotating presidency of the bloc said the agreement was important as it was “part of the continued response by EU and partners to the Russian war of aggression against Ukraine”.

More hawkish EU states including Poland and the Baltics were successful in demanding a review of the cap level every two months, according to two officials. Other G7 states including the US are less inclined to such a mechanism given the potential instability it could cause on energy markets, officials said.

In the final agreement, ambassadors agreed to a first review by mid-March with the commission considering the impact of the cap both on the Russian budget and member states, according to a draft of the proposal seen by the Financial Times. It would also take account of its effect on the market “including possible turbulences”, the document said.

The cap compares with a current market price for diesel of around $110-$120 a barrel. High quality refined fuels like diesel and petrol are almost always more expensive than crude, which is trading near $80 a barrel, given the additional costs of refining and handling.

But since the invasion of Ukraine diesel in particular has soared as Russia was Europe’s largest external supplier of the fuel, while many European buyers have already turned away.

The tightness in diesel markets has raised questions over whether EU buyers will be able to quickly replace the barrels they once got from Russia once sanctions create an embargo. The relatively small implied discount under the price cap for diesel is partly a reflection of concerns about tightness in the market globally, according to members of the G7 coalition.

The $60-a-barrel price cap on Russian crude imposed by the EU in December also comes with a review every two months. It was agreed following similar pressure from central and eastern European capitals who argued that the level had to be adjusted regularly to keep reducing Russia’s war coffers.

One EU diplomat said that caps were a “well-balanced restrictive measure which will keep the price of oil and derived products low enough to reduce Russia’s income while guaranteeing access for third countries”.

The debate between the EU’s 27 capitals over the level of the cap was exacerbated by demands from some countries to also tighten trade sanctions against Belarus, Moscow’s key ally and military supporter in the war.

In a bid to reach an agreement on the price cap, the debate over Belarus sanctions has been shifted to a discussion later this month on a new package of sanctions against Russia, two officials said.