The EU enters into an agreement to impose a cap of 60 dollars on Russian oil exports

EU member states have agreed to implement a $60 cap on global purchases of Russian oil after Poland dropped its objections to the long-debated deal aimed at reducing the Kremlin’s fossil fuel revenues.

Warsaw had delayed agreement on the tariff after demanding a lower cap to further erode Moscow’s revenue. Its support means the bloc will have the initiative in place before December 5, when a ban on imports of Russian seaborne oil into the EU comes into effect.

The tariff, to be adopted by G7 countries and some allies, is designed to keep Russian oil flowing to countries such as India and China, but at a lower profit to Moscow.

It is intended to have a global reach because Russian oil importers, who rely on insurance coverage and shipping services from companies based in the EU and other G7 countries, must comply with the price cap.

However, Russia has said it will not sell oil to any country participating in the cap, and India and China have so far not said they will implement it. Russia is expected to rely on tankers prepared to operate without Western insurance, although traders have warned that exports could fall if it does not get access to enough vessels.

Russia̵[ads1]7;s oil is already traded at a large discount compared to the international benchmark Brent.

“We can formally accept the decision,” said Andzrej Sadoś, Poland’s permanent representative to the EU, adding that the official publication of the legislation is likely to take place over the weekend.

The agreement follows months of negotiations.

US Treasury Secretary Janet Yellen, one of the driving forces behind the price cap plan this year, welcomed the deal and praised Washington’s partners in the European Union, saying it would “help us achieve our goal of limiting Putin’s primary source of revenue for his illegal war in Ukraine while preserve the stability of global energy supplies.

The tariff is lower than the European Commission’s original proposed price of as high as $70, following demands from Poland and other member states to reduce it. On Friday, the benchmark Brent crude traded at around $86.

Warsaw gave its approval after Brussels agreed to speed up work on a new package of sanctions against Moscow, which will include measures proposed by Poland. “We wanted to be absolutely sure … that we are working with a new, painful, expensive for Russia, package of sanctions,” Sadoś said.

The cap agreement also contains a provision that the ceiling must be regularly reviewed to ensure that it is “at least 5 per cent” below the average market price for Russian oil.

The price cap initiative has been championed by the United States, which is keen to ensure that Russian oil continues to be exported to avoid a global shortage that would trigger a spike in crude prices. The US hopes India and China will still be able to use the existence of the price cap to negotiate bigger discounts.

Yellen said the new price cap would particularly benefit low- and middle-income countries that have “already borne the brunt” of energy and food price increases caused by Russia’s invasion.

“Whether these countries buy energy within or outside the cap, the cap will enable them to bargain for steeper discounts on Russian oil and benefit from greater stability in global energy markets,” she said in a statement.

Some EU states had initially demanded a price level of as little as $30, but officials in Brussels feared this would prompt Moscow to cut exports.

A senior finance official also discounted the possibility that Russia could quickly circumvent the price cap and offer its own insurance and services to shippers.

“If Russia spends money trying to build up its own [shipping and insurance] ecosystem that helps us. . . with our first target, because they will have less money to fight their war in Ukraine, the official said.

Oil and gas flows are likely to account for 42 percent of Russia’s revenue this year, around 11.7 billion Rbs ($191 billion), the country’s finance ministry has said.

Additional reporting by David Sheppard and Derek Brower