The European Union has reached a consensus on the price at which Russian oil can be capped just days before its ban on most imports comes into force.
The deal, which needed approval from holdout Poland, was confirmed on Twitter by the president of the European Commission, Ursula von der Leyen, as a key milestone in the West s efforts to punish President Vladimir Putin without adding to stress on the global economy.
The European Union, the G 7 and other global partners have agreed to introduce a global price cap on seaborne oil from Russia, as well as strengthen Russian sanctions, diminish Moscow's revenues and allow EU-based operators to ship oil to third-party countries, provided it is priced below the cap, according to von der Leyen.
The EU official with knowledge of the situation told CNN on Friday that the bloc's 27 member states agreed to set the cap at $60 a barrel.
After lobbying by the United States, the West s biggest economies agreed earlier this year to establish a price cap, and vowed to hash out the details by early December. Setting a number had proved difficult.
The price of Russian oil between $65 and $70 a barrel, a range previously under discussion, wouldn't have caused much pain for the Kremlin. Urals crude, Russia's benchmark, has already been trading within or close to that range. EU countries, such as Poland and Estonia, had pushed for the cap to be lower.
Today s oil price cap agreement is a step in the right direction, but this is not enough, Estonian foreign minister Urmas Reinsalu tweeted Friday. The delivery is weak. Intent is right. A price of $60 represents a discount of almost $27 on Brent crude, the global benchmark. Urals has been trading at discounts of around $23 in the past few days. The EU agreement included a mechanism to adjust the cap to ensure it was always 5% below the market rate, according to a report by the European Union.
Russia could retaliate by slashing output, which would roil markets, because of the risk of settling on a lower price. Russia has warned that it will stop supplying countries that adhere to the cap.
The last remaining obstacle to a wider G 7 agreement was lifted with EU countries in alignment. A top US Treasury department official said Thursday that $60 would be acceptable.
According to John Kirby, National Security Council coordinator for strategic communications, he believes that the price cap will help limit Mr. Putin's ability to profit off the oil market so that he can continue to fund a war machine that continues to kill innocent Ukrainians.
Kirby said that the $60 per barrel is appropriate and that we think it will have that effect.
The price cap is designed to be enforced by companies that provide shipping, insurance, and other services for Russian oil. If a buyer had agreed to pay more than the cap, they would withhold those services. Most of these firms are based in Europe or the United Kingdom.
The European Union imposed an embargo on Russian oil traveling by sea on Monday, and investors are already on edge. There are questions about the impact of the measure, along with confusion about the price cap, that have unsettled traders.
There is so much uncertainty and doubt and lack of clarity about the policy that no one is really confident about how to act, said Richard Bronze, head of geopolitics at the research firm Energy Aspects.
Since the summer, oil prices have dropped sharply due to China's coronaviruses lockdown and global recession fears. In October, OPEC and Russia announced a big production cut, but that had little impact on prices. The EU embargo and efforts to set a price cap could push them higher again.
Chris Liakos and Betsy Klein contributed to this article.