"The Group of Seven advanced democracies agreed to cap the price of Russian crude oil at $60 a barrel, moving forward with an unprecedented sanction on one of the world's largest oil producers months after its military operation in Ukraine.
The agreement among Australia and the G-7 -- Canada, France, Germany, Italy, Japan, the U.K. and the U.S. -- came hours after the European Union united behind the figure. Poland, a holdout in the past few days for a lower cap, agreed to $60 a barrel earlier on Friday, clearing the way for the deal. The European Commission, the EU's executive arm, initially proposed setting the cap between $65 to $70 a barrel.
The cap will ban Western companies from insuring, financing or shipping Russian oil unless it is sold below $60 a barrel. The U.S. and its allies designed the system in an attempt to cut into Moscow's oil revenues while keeping Russian crude available on the market. It aims to leverage the concentration of maritime services in the West to curb Moscow's economy.
"With Russia's economy already contracting and its budget increasingly stretched thin, the price cap will immediately cut into [Russian President Vladimir] Putin's most important source of revenue," said Treasury Secretary Janet Yellen, the lead architect of the plan.
Russian officials have threatened to cut off oil exports in response to the cap, arguing that the sanction distorts market dynamics and could lead to an increase in global prices. But as of Friday, there were no signs on markets that Russia began to withdraw its oil from global markets.
Brent crude, the global oil benchmark, traded around $85 a barrel Friday, dropping after the EU reached its agreement. Analysts and U.S. officials view the price of Russian crude, or Urals, as opaque and difficult to discover. Data provider Refinitiv listed the price of Urals at about $69 a barrel on Thursday, while Argus Media pegged the price at about $48 a barrel in the Baltic port of Primorsk on Wednesday. Western officials maintain that a cap at $60 a barrel will still cut into Russia's profits, and have said they could lower the price over time.
"The EU agreement on an oil price cap, coordinated with G-7 and others, will reduce Russia's revenues significantly," European Commission President Ursula von der Leyen said in a tweet Friday. "It will help us stabilize global energy prices, benefiting emerging economies around the world."
Biden administration officials had hoped to have selected the price cap several weeks ago, but disagreements with Europe about how harsh to make the penalty delayed the effort.
Ms. Yellen and other U.S. officials pushed the plan hard to get it into place this year. Within half an hour of Poland saying Thursday it needed extra time to consider the price cap, Polish government officials were receiving phone calls from senior U.S. officials pushing them to sign off, according to a Polish official.
The governments of India and China, two of the largest buyers of Russian crude, haven't embraced the price-cap plan, wary of joining a U.S.-led sanction program against Russia.
Biden administration officials say they hope that refineries and other buyers in India would opt to comply with the cap so they can access cheaper and more reliable Western maritime services.
In general, the U.S. is relying on the lure of cheaper oil -- and the centrality of Western maritime services -- to woo buyers worldwide to buy oil under the cap. Earlier efforts to encourage countries to affirmatively commit to buying Russian oil at a price set by the West largely fizzled, as countries that haven't joined sanctions on Russia remained neutral.
Some countries, though, including Indonesia, have indicated that they would buy cheaper oil if it is available through the plan.
The EU and U.K. also will ban the import of Russian crude on Monday, meaning the cap is aimed at Russia's sales to the rest of the global market. They will ban the import of Russian refinery products on Feb. 5, 2023, when the West also is hoping to set price caps on the export of Russian petroleum products.
Poland, Lithuania and Estonia argued during talks that the cap should be set below Russia's current market rates. They secured a commitment to review the price level every two months starting in mid-January. The EU says the aim would be to set the limit at least 5% below Russia's market prices." [1]
1. World News: G-7 Caps Russian Oil at $60 a Barrel --- The move aims to limit Moscow's revenues, while keeping global supplies on the market
Norman, Laurence; Duehren, Andrew.
Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 03 Dec 2022: A.8.
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