The EU has tentatively agreed on setting the price cap on Russian oil at $60 per barrel, Reuters reported on Thursday.
The plan would also include an adjustment mechanism to keep the price cap 5% below the market value. The EU is setting the price cap at the request of the G7, which asked for the price to be slightly higher, somewhere between $65 and $70 per barrel.
The EU governments still need to formally sign off on the price cap plan, which is expected to happen on Friday. The bloc struggled to set a price as Poland was seeking a drastically lower number, around $20 to $30 per barrel.
No matter what the price is, Russia has said it will retaliate and cut off any country trying to impose price caps on its energy. If Moscow retaliates by slashing oil production, it will send global prices skyrocketing.
December 5 is the day that an EU oil embargo on Russia comes into effect, although there are exemptions for Hungary and other land-locked countries. The EU sanctions will also prohibit insurance and other services for shipments of Russian oil.
The idea of the price cap, a plan devised by US Treasury Secretary Janet Yellen, is to allow insurance for shipments of Russian oil as long as it’s sold at the set price. But shipping insurers don’t think the plan is enforceable as it would be hard to know what price the oil is actually being purchased at.
Besides the obvious issues with the plan, the US still believes it will work. “We think that the price ranges that have been discussed accomplish those two goals and will put us in a position where Russia’s revenues come down while we’re ensuring that people get access to reliable cheap energy going forward,” Deputy Treasury Secretary Wally Adeyemo said on Thursday.