After weeks of intense negotiations, European Union ambassadors reached an agreement this Friday. The move places a price cap on Russian oil shipped by sea at 60 dollars per barrel, with a correction mechanism designed to keep the figure about 5 percent below market value. The aim is to limit Moscow’s income and pressure its economy during the ongoing war in Ukraine. The cap forms part of a broader package agreed by the G7 members—Germany, Canada, the United States, France, Japan, the United Kingdom, and Italy—intended to be effective ahead of Monday, December 5, the date the EU embargo on Russian crude oil began as part of the sixth round of sanctions against the Kremlin.
Ambassadors spent weeks seeking a deal and addressing resistance from Baltic states and Poland, which warned that a high ceiling could undermine sanctions by letting Russia set a very large limit. The initial proposals hovered around 70 dollars. The agreement will take effect after the written procedure completed by the rotating EU presidency and will affect both EU and non-G7 third countries, shaping the bloc’s approach to Russian energy revenues and the broader war effort in Ukraine. [Attribution: EU Council]
Estonian Prime Minister Kaja Kallas participated personally in the negotiations, highlighting the intent to curb Moscow’s energy revenues and, if necessary, prohibit transportation of Russian oil to third countries and remove insurance services if the price exceeds the 60-dollar per barrel threshold. The broader consensus was reached as part of the Twenty-Seven’s coordinated effort. The decision comes with restrictions on purchasing, importing, or transferring Russian oil, subject to temporary exemptions for countries heavily dependent on Russian supplies due to geography, with continued allowances for pipeline imports. The measures, initially set to begin on December 5 for crude oil and February 5, 2023 for other refined products, aim to cover a substantial portion of Russian oil imports by sea and reflect a significant shift in Europe’s energy policy. [Attribution: EU Council]
Simultaneously, the Twenty-Seven persist in refining a proposal from the European Commission to cap gas prices in the TTF market. A broad coalition, notably Spain, has characterized the Brussels plan as unrealistic and insufficient, while the Czech EU presidency continues to push for a consensus document acceptable to most member states ahead of an extraordinary meeting of energy ministers on December 13. [Attribution: European Commission]
Most EU countries request a dynamic cap or a lower fixed ceiling
The Brussels plan includes a correction mechanism that would trigger if the price of gas stays above 275 euros per megawatt hour for two consecutive weeks. If the difference between LNG prices on international markets exceeds 58 euros for 10 days, the mechanism could activate. After initial discussions and working group sessions, Prague has proposed lowering the activation limit to 264 euros for five consecutive days, a reduction from Brussels’ suggestion of two weeks and five days for the international price difference, respectively. Countries such as Italy, Greece, Poland, Slovakia, and Belgium are pushing for a lower fixed cap of 160 euros or a dynamic cap tied to monthly indices beyond the TTF. [Attribution: EU Council]