European Union Agrees on Capping Russian Oil Prices

European Commission President Ursula von der Leyen gives a press conference on energy at EU headquarters in Brussels, on Sept. 7, 2022. Kenzo Tribouillard/AFP via Getty Images

The European Union (EU) has agreed on an eighth package of sanctions against Russia for its invasion of Ukraine, which includes an agreement to cap the prices of Russian oil.

The package was proposed last week by European Commission President Ursula von der Leyen after Russian President Vladimir Putin threatened the use of nuclear weapons. Once the price cap is implemented, it will allow European operators to transport Russian oil to other nations only if the prices are below a pre-set level, according to a press release on Oct. 6.

“This will help to further reduce Russia’s revenues while keeping global energy markets stable through continued supplies. It will thus also help address inflation and keep energy costs stable at a time when high costs—particularly elevated fuel prices—are a great concern to all Europeans,” the press release stated.

The price cap measure is being “closely coordinated” with G7 partners and will come into effect after Dec. 5, 2022, for crude oil and Feb. 5, 2023, for refined petroleum products once the European Council decides on the matter.

The new sanctions also introduce additional import restrictions worth €7 billion ($6.88 billion) on Russian goods and export restrictions aimed at reducing Russia’s access to military and technological items. The sanctions deprive Russia and its suppliers of further goods necessary to wage its war against Ukraine, the release stated.

In a tweet on Oct. 5, von der Leyen welcomed the agreement between member states on the eighth sanctions package. “We have moved quickly and decisively. We will never accept Putin’s sham referenda nor any kind of annexation in Ukraine. We are determined to continue making the Kremlin pay.”

The sanctions package needs the unanimous approval of all 27 member states of the EU to get passed. EU leaders will meet on Oct. 7 in Prague to discuss Russia’s war against Ukraine, the energy situation, and other matters.

Saudi Reaction, OPEC+ Cuts

The EU’s price cap proposal is in line with a previous agreement by G7 countries, including the United States. Though no decision has been made on the price cap, Washington has indicated that it will be decided in the coming weeks, according to Politico.

A Saudi minister has slammed U.S.-led plans for a price cap on Russian exports, insisting that was the reason behind the recently announced production cuts by OPEC+.

The coming two months will be a “period of uncertainty” due to a lack of details and clarity about how the price cap will be implemented, Energy Minister Prince Abdulaziz bin Salman said in an interview with Bloomberg.

OPEC+ announced a reduction of oil output by two million barrels per day starting November amid declining oil prices. Crude oil prices have fallen from more than $120 per barrel in early June to trade at around $80 per barrel.

The White House has reacted sharply to the OPEC+ decision. In a statement on Oct. 5, National Security Advisor Jake Sullivan and National Economic Council Director Brian Deese said that President Joe Biden is “disappointed by the shortsighted decision.”