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G7 and Australia follow EU, agree to $60 a barrel price cap on Russian crude oil

Washington/ BrusselsEdited By: Manas JoshiUpdated: Dec 03, 2022, 02:04 PM IST
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File photo of Vladimir Putin. Photograph:(AFP)

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The price cap aims to limit Russia's ability to raise income through its energy assets to fund its war effort in Ukraine. After a last-minute flurry of negotiations, the EU presidency, held by the Czech Republic, had tweeted that "ambassadors have just reached an agreement on price cap for Russian seaborne #oil." European Commission President Ursula von der Leyen said the price cap would significantly reduce Russia's revenues. "It will help us stabilise global energy prices, benefiting emerging economies around the world," von der Leyen said on Twitter, adding that the cap would be "adjustable over time" to react to market developments.

Following European Union, the Group of Seven (G7) nations and Australia on Friday (December 2) also agreed to the USD 60 per barrel price cap on Russian seaborne crude oil. Earlier in the day, the European Union member states had hammered out a political agreement over price cap overcoming Poland's hesitancy. The price cap will make it very difficult for Russia to sell its oil for a higher price since the most important shipping and insurance firms are based in G7 countries.

The price cap by G& coalition will allow non-EU countries to keep importing seaborne Russian crude oil, but it will prohibit shipping, insurance and re-insurance companies from handling cargoes of Russian crude around the globe, unless it is sold for less than the price cap.

The EU had agreed to the price cap after holdout Poland also came in its support, paving the way for formal approval over the weekend.

The G7 and Australia said in a statement that the price cap would take effect on Dec. 5 or very soon thereafter.

Watch | War in Ukraine: $60 per barrel price cap agreed on Russian crude oil

The nations said they anticipated that any revision of the price would include a form of grandfathering to allow compliant transactions concluded before the change.

"The Price Cap Coalition may also consider further action to ensure the effectiveness of the price cap," the statement read. No details were immediately available on what further actions could be taken.

The price cap aims to limit Russia's ability to raise income through its energy assets to fund its ongoing war efforts in Ukraine.

Warsaw had resisted the proposed level as it examined an adjustment mechanism to keep the cap below the market price. It had pushed in EU negotiations for the cap to be as low as possible to squeeze revenues to Russia and limit Moscow's ability to finance its war in Ukraine.

Polish Ambassador to the EU, Andrzej Sados, on Friday told reporters Poland had backed the EU deal, which included a mechanism to keep the oil price cap at least 5 per cent below the market rate. U.S. officials said the deal was unprecedented and demonstrated the resolve of the coalition opposing Russia's war.

Details of the deal are due to be published in the EU legal journal on Sunday.

(With inputs from agencies)

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