A fuel truck drives by on a highway in Frankfurt, Germany. European Union governments agreed to temporarily set a $100-per-barrel price cap on Russian diesel sales on Friday, February 3, 2023, to coincide with an EU ban on the fuel. File photo | Photo Credit: AP
EU governments agreed tentatively to set a $100-per-barrel price cap on Russian diesel sales on Friday, February 3, 2023, coinciding with an EU ban on the fuel – to the bloc steps to eliminate energy dependence on Russia and limiting Moscow’s funding of its war in Ukraine.
Diplomats representing 27 European Union governments called for caps on Russian diesel fuel, jet fuel and gasoline ahead of the ban taking effect on Sunday. The aim is to reduce Russia’s income while maintaining its diesel flow to non-Western countries to avoid a global shortage that would drive up prices and inflation.
The information was provided by diplomats from 3 different EU member states ahead of a formal announcement by the Group of Seven major industrialized nations. He spoke on the condition of anonymity as an official announcement would come 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 to a cap of $45 a barrel on Russian oil products sold for less than the price of crude oil.
The deal follows a similar G-7 agreement to cap the price of Russian crude oil at $60 a barrel. All price limits are enforced by a requirement for the world’s largely Western-based shippers and insurers to comply with the embargo and only handle oil products valued at or above the limit.
Russia has said it will not sell oil to countries that adhere to the limits, but since its oil is selling for less than $60 a barrel, it has continued to flow into the global market. Price caps encourage non-Western customers who have not embargoed Russian oil to press for discounts, while outright pilferage – though possible – incurs additional costs such as arranging off-the-book tankers.
Ambassadors from 27 EU countries forwarded the decision, and national governments have until Saturday morning to respond with a written objection. No changes to the deal were expected.
Europe has been steadily reducing its diesel supply from Russia, which accounts for about half of all imports. Diesel is important to the economy because it is used to power cars, freight trucks, farm equipment, and factory machinery. Prices have risen as Russia’s invasion of Ukraine raised demand and limited refinery capacity in some places.
Analysts say if the price cap works as scheduled and Russian diesel keeps flowing, fuel prices shouldn’t skyrocket. Europe may find alternative supplies of diesel from the US, India and the Middle East, while Russia may look for new customers outside Europe.
However, the cap’s impact will be unpredictable as shippers move fuel flows to new destinations, and longer ocean voyages could overwhelm tanker capacity.
Fossil fuel sales are a key pillar of Russia’s budget, but European governments previously hesitated to cut their purchases because the economy was heavily dependent on Russian natural gas, oil and diesel. Since the start of the war in Ukraine, that has changed.
Europe shut down Russian coal and subsequently banned its crude oil on 5 December. Meanwhile, Moscow has halted most supplies of natural gas to Europe, citing technical issues and the refusal of customers to pay in Russian currency. European officials say it is retaliation for the sanctions and an attempt to undermine their support for Ukraine.