The price cap of $60 per barrel for Russian oil devised by the G7 and supported by the European Union comes into effect today, aiming to curb Russia’s revenues from oil exports while keeping flows into the international market flowing.
The cap was agreed upon just before the deadline by the European Union after holdouts including Poland and Estonia refused to agree to the originally proposed range of between $65 and $70 per barrel that came from Washington.
In addition to the price cap, the EU has imposed an embargo on maritime imports of Russian crude, effective today.
Per the price cap, Russia can export crude oil, ship it, and insure it using the services of Western companies only if it sells it at $60 per barrel or less.
Because all the biggest shipping and insurance companies are based in Western Europe and the U.S., the authors of the cap assumed it would be enough to bind Russia to its conditions.
Russia, however, has stated it will not sell oil to countries enforcing the price cap and reiterated this statement this weekend.
"We are working on mechanisms to prohibit the use of a price cap instrument, regardless of what level is set, because such interference could further destabilise the market," Deputy Prime Minister Alexander Novak said yesterday, as quoted by Reuters.
"We will sell oil and petroleum products only to those countries that will work with us under market conditions, even if we have to reduce production a little," he also said.
Novak had previously said that Russia is prepared to reduce oil production if that becomes necessary in the context of a price cap.
Analysts are unsure if the price cap will have an immediate effect on Russian oil sales, with Reuters noting the wide discount to Brent at which Russian crude trades.