Europe reached an agreement on the price limit of Russian diesel – KGET 17

BRUSSELS (AP) — European Union governments tentatively agreed Friday to set a $100-a-barrel ceiling on Russian diesel sales to coincide with the EU’s fuel embargo — steps aimed at ending the bloc’s energy dependence on Russia and limiting money Moscow finances its war in Ukraine.

Diplomats representing the EU’s 27 governments have set a cap on Russian diesel, jet fuel and gasoline before the ban takes effect on Sunday. It aims to reduce Russia’s revenue while keeping its diesel flow to non-Western countries to avoid a global shortage that would drive up prices and inflation.

The information was given by diplomats from 3 different EU member states before the official announcement by the Group of Seven major industrialized countries. They spoke on condition of anonymity because the official announcement will be made later.

The $100 per barrel cap applies to Russian diesel and other fuels that sell for more than the crude oil used to make them. Officials agreed to a cap of $45 per barrel on Russian oil products that sell below the price of crude oil.

The deal follows a similar G-7 agreement to cap the price of Russian crude oil at $60 a barrel. All price caps are imposed by requiring the mostly Western-based global shippers and insurers to comply with the sanctions and only handle oil products at a price at or above the cap.

Russia has said it will not sell to countries that adhere to the oil cap, but since its oil sells for less than $60 a barrel, it has continued to flow into the global market. Price caps encourage non-Western buyers who have not banned Russian oil to seek discounts, while total avoidance — while possible — carries additional costs such as organizing unofficial tankers.

The decision was presented by the ambassadors of 27 EU countries, and national governments have until early Saturday to respond with a written objection. No contract changes were expected.

Europe is steadily reducing its diesel deliveries from Russia with around half of its total imports. Diesel is crucial to the economy because it is used to power cars, trucks that transport goods, agricultural equipment and factory machinery. Prices have soared since Russia invaded Ukraine due to a recovery in demand and limited refinery capacity in some places.

If the cap works as predicted and Russian diesel continues to flow, fuel prices should not skyrocket, analysts say. Europe could get alternative diesel supplies from the US, India and the Middle East, while Russia could look for new customers outside Europe.

However, the impact of the restrictions will be unpredictable as shippers divert fuel flows to new destinations and longer sea voyages can strain tanker capacity.

Fossil fuel sales are a key pillar of Russia’s budget, but European governments have previously been reluctant to end their purchases because the economy has depended heavily on Russian natural gas, oil and diesel. Since the beginning of the war in Ukraine, that has changed.

Europe cut off Russian coal and later banned its crude oil on December 5. Meanwhile, Moscow has halted most natural gas shipments to Europe, citing technical problems and customers’ refusal to pay in Russian currency. European officials say it is retaliation for sanctions and an attempt to undermine their support for Ukraine.

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McHugh reported from Frankfurt, Germany.