G7 coalition agrees $60 per barrel price cap for Russian oil

WASHINGTON/BRUSSELS,  (Reuters) - The Group of Seven (G7) nations and Australia on Friday said they had agreed a $60 per barrel price cap on Russian seaborne crude oil after European Union members overcame resistance from Poland and hammered out a political agreement earlier in the day.

The EU agreed the price after holdout Poland gave its support, paving the way for formal approval over the weekend.

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

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, a G7 idea, aims to reduce Russia's income from selling oil, while preventing a spike in global oil prices after an EU embargo on Russian crude takes effect on Dec. 5.

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% below the market rate. U.S. officials said the deal was unprecedented and demonstrated the resolve of the coalition opposing Russia's war.

A spokesperson for the Czech Republic, which holds the rotating EU presidency and oversees EU countries' negotiations, said it had launched the written procedure for all 27 EU countries to formally greenlight the deal, following Poland's approval.

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

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.

The G7 price cap will allow non-EU countries to continue 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.

Because the most important shipping and insurance firms are based in G7 countries, the price cap would make it very difficult for Moscow to sell its oil for a higher price.

U.S. Treasury Secretary Janet Yellen said the cap will particularly benefit low- and medium-income countries that have borne the brunt of high energy and food prices.

"With Russia’s economy already contracting and its budget increasingly stretched thin, the price cap will immediately cut into Putin’s most important source of revenue," Yellen said in a statement.

A senior U.S. Treasury Department official told reporters on Friday that the $60 per barrel price cap on Russian seaborne crude oil will keep global markets well supplied while "institutionalizing" discounts created by the threat of such a limit.

The chair of the Russian lower house's foreign affairs committee told Tass news agency on Friday the European Union was jeopardising its own energy security.

The initial G7 proposal last week was for a price cap of $65-$70 per barrel with no adjustment mechanism. Since Russian Urals crude already traded lower, Poland, Lithuania and Estonia pushed for a lower price.

Russian Urals crude traded at around $67 a barrel on Friday.

EU countries have wrangled for days over the details, with those countries adding conditions to the deal - including that the price cap will be reviewed in mid-January and every two months after that, according to diplomats and an EU document seen by Reuters on Thursday.

The document also said a 45-day transitional period would apply to vessels carrying Russian crude that was loaded before Dec. 5 and unloaded at its final destination by Jan. 19, 2023.

Reporting by Jan Strupczewski and Kate Abnett in Brussels and David Lawder, Andrea Shalal and Daphne Psaledakis in Washington; editing by Geert De Clercq, Philippa Fletcher, Barbara Lewis, Alistair Bell and Daniel Wallis

Dec 3 (Reuters) - Russia "will not accept" a price cap on its oil and is analysing how to respond, the Kremlin said in comments reported on Saturday, in response to a deal by Western powers aimed at limiting a key source of funding for its war in Ukraine.

Kremlin spokesman Dmitry Peskov said Moscow had made preparations for Friday's price cap announcement by the Group of Seven nations, the European Union and Australia, the Russian state news agency TASS reported.

"We will not accept this cap," RIA news agency quoted him as saying. He added that Russia would conduct a rapid analysis of the agreement and respond after that, RIA reported.

Russia has repeatedly said it will not supply oil to countries that implement the cap - a stance reaffirmed by Mikhail Ulyanov, Moscow's ambassador to international organisations in Vienna, in posts on social media on Saturday.

"Starting from this year Europe will live without Russian oil," he said.

The G7 price cap will allow non-EU countries to continue 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 $60. That could complicate the shipment of Russian crude priced above the cap, even to countries which are not part of the agreement.

Russian Urals crude traded at around $67 a barrel on Friday.

U.S. Treasury Secretary Janet Yellen said the cap will particularly benefit low- and medium-income countries that have borne the brunt of high energy and food prices.

"With Russia's economy already contracting and its budget increasingly stretched thin, the price cap will immediately cut into (President Vladimir) Putin’s most important source of revenue," Yellen said in a statement.

In comments published on Telegram, Russia's embassy in the United States criticised what it called the "dangerous" Western move and said Moscow would continue to find buyers for its oil.

"Steps like these will inevitably result in increasing uncertainty and imposing higher costs for raw materials' consumers," it said.

"Regardless of the current flirtations with the dangerous and illegitimate instrument, we are confident that Russian oil will continue to be in demand."

Writing by Mark Trevelyan; Editing by Frank Jack Danie

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