Europe agrees on upper price limit for Russian diesel

BRUSSELS – European Union governments on Friday tentatively agreed to set a price cap of $100 a barrel on sales of Russian diesel, coinciding with one EU fuel embargo — Steps aimed at ending the bloc’s energy dependency on Russia and limiting the money Moscow earns to fund it war in Ukraine.

Diplomats representing the 27 EU governments have set the cap on Russian diesel fuel, jet fuel and petrol before a ban comes into effect on Sunday. It aims to reduce Russia’s income while its diesel continues to flow to non-Western countries avoid a global shortage that would send prices and inflation higher.

The information was provided by diplomats from three different EU Member States ahead of a formal announcement by the Group of Big Seven. They spoke on condition of anonymity as the official announcement would be made later.

The $100 per barrel cap applies to Russian diesel and other fuels that sell for more than the crude oil used to make them. Officials agreed on a $45 per barrel limit for Russian oil products sold for less than the price of crude oil.

The deal follows a similar G-7 deal limit the price of Russian crude oil to $60 a barrel. All price caps are enforced by the requirement that the world’s largely western-based shippers and insurers comply with sanctions and deal only with oil products priced at or above the limits.

Russia has said it will not sell to countries that comply with the oil cap, but because its oil is selling for less than $60 a barrel, it continues to flow into the world market. The price caps encourage non-western customers who have not banned Russian oil pushing for price reductions, while circumventing them entirely – if possible – entails additional costs, e.g. B. organizing off-the-books tankers.

The ambassadors of the 27 EU countries present the decision, and national governments have until Saturday morning to respond with a written objection. No changes to the deal were expected.

Europe has continuously reduced its diesel deliveries from Russia by around half of all imports. Diesel is vital to the economy as it is used to power cars, trucks, farm equipment and factory machinery. Prices have skyrocketed since Russia invaded Ukraine due to rising demand and limited refining capacity in some places.

If the price cap works as intended and Russian diesel keeps flowing, fuel prices shouldn’t spike, analysts say. Europe could get alternative diesel supplies from the US, India and the Middle East, while Russia could seek new customers outside of Europe.

However, the impact of the cap will be unpredictable as shippers could divert fuel flows to new destinations and longer sea voyages could strain tanker capacity.

Fossil fuel sales are a key pillar of Russia’s budget, but European governments were previously reluctant to stop buying because the economy was doing it heavily dependent on Russian natural gas, oil and diesel. That has changed since the beginning of the war in Ukraine.

Europe cut off Russian coal and later banned its crude oil on December 5th. In the meantime, Moscow has halted most natural gas supplies to Europe citing technical problems and customers’ refusal to pay in Russian currency. European officials say it is in retaliation for sanctions and an attempt to undermine their support for Ukraine.

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McHugh reported from Frankfurt, Germany.