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Agreement on price ceiling for Russian diesel engines in Europe

BRUSSELS –

European Union governments temporarily agreed on Friday to put a $100 per barrel price cap on Russian diesel sales to coincide with an EU fuel embargo – steps aimed at ending dependence reliance on the bloc’s energy on Russia and limiting the amount Moscow earns to fund its war in Ukraine.

Diplomats representing 27 EU governments put limits on Russian diesel, jet fuel and gasoline before the ban goes into effect on Sunday. It aims to reduce Russia’s income while keeping its diesel oil flowing to non-Western countries to avoid a global shortage that drives prices and inflation higher.

The information was provided by diplomats from three different EU member states ahead of the official announcement of the Group of Seven major industrialized nations. They spoke on condition of anonymity because the official announcement will come later.

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

The deal follows a similar G-7 deal that limits the price of Russian crude to $60 a barrel. All price ceilings are enforced as required for the world’s mainly Western insurers and shippers to comply with the sanctions and deal only with oil products priced at or higher than the limit.

Russia has said it will not sell to countries subject to the oil limit, but because its oil is being sold for less than $60 a barrel, it continues to flow into the global market. The price ceiling incentivizes non-Western customers that have not yet banned Russian oil to force a price reduction, while a complete avoidance – although possible – entails additional costs such as organizing offshore tankers. documents.

The ambassadors of the 27 EU countries have made the decision, and national governments have until early Saturday to respond in writing to their objections. No changes to the deal are expected.

Europe has been gradually reducing its diesel supply from Russia from about half of its total imports. Diesel is key to the economy as it is used to power cars, freight trucks, farm equipment and factory machinery. Prices have spiked since Russia invaded Ukraine due to a rebound in demand and limited refining capacity in some places.

Analysts say that if the price cap works as intended and Russian diesel continues to circulate, fuel prices will not skyrocket. Europe could get alternative diesel supplies from the US, India and the Middle East, while Russia could look for new customers outside of Europe.

However, the impact of the cap will be unpredictable as shippers reroute fuel flows to new destinations and longer ocean voyages could reduce tanker capacity.

Fossil fuel sales are a major pillar of Russia’s budget, but European governments have previously been hesitant to cut purchases because the economy relies heavily on natural gas, oil and diesel. of Russia. Since the start of the war in Ukraine, that has changed.

Europe cut Russian coal and then banned crude on December 5. Meanwhile, Moscow has stopped supplying most of its natural gas to Europe, citing technical problems and customer rejections. payment in Russian currency. European officials say it is retaliation for the sanctions and an attempt to weaken their support for Ukraine.



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