EU countries on Friday agreed a cap on the global price of Russian petroleum products, ahead of a full import ban on Russian oil products that comes into force on Sunday.
Ambassadors agreed to cap the price of oil products that trade above the price of crude oil — including diesel, gasoline and jet fuel — at $100 per barrel, two EU diplomats said. Products that trade at a discount to crude will be capped at $45 per barrel.
The Swedish presidency of the Council confirmed the deal on Friday afternoon, just two days before the EU bans imports of all Russian oil products.
The EU ban and the G7 price cap are intended to work in tandem. While the EU sanctions close off one of Russia’s most important markets for its fossil fuels, the price caps are intended to permit Russian exports to continue flowing on the global market, avoiding a major oil supply shortage or price shock.
The price caps on petroleum products follow a $60 cap on the price of Russian crude oil, agreed in December to coincide with a similar EU import ban.
A decision on the cap level was delayed after Poland and the Baltic states pushed for a downward review of the crude price cap and for lower price caps on petroleum products. A deal was reached on the proviso that both sets of price caps will now be subject to a review every two months, starting in March 2023, two diplomats said.
The new EU ban on Russian diesel and other oil products represents the bloc’s latest economic retaliation against the Kremlin in response to the invasion of Ukraine.
Before the war, Russia typically supplied more than half of the EU’s diesel imports and around 10 percent of its total diesel demand. The imminent EU import ban had led to fears of a supply or price shock, but soaring imports in recent weeks have eased worries for now.
Diesel is currently trading at around $120 to $130 per barrel, so the cap will likely not directly hit Russia’s income from exports of the fuel immediately.
However, the EU ban is expected to lead to a major shift in export flows, with buyers in the Middle East and Asia likely to buy up volumes that previously flowed to Europe. There are signs that the EU’s ban on crude oil imports, alongside the price cap, is enabling buyers elsewhere in the world to demand discounts on Russian oil, hitting the Kremlin’s fossil fuel revenues. EU officials hope the oil products ban will lead to a similar hit to Russian export income.