The United States and European Union have agreed to cap Russian diesel products at $100 per barrel, Treasury officials said Friday, as the G-7-backed coalition prepares to launch the second phase of its price cap effort designed to limit Russia's war revenue.
The $100 cap will apply to all premium refined oil products, such as diesel fuel, and will take effect Feb. 5 alongside the EU's ban on refined Russian oil imports.
WESTERN SANCTIONS PUSH RUSSIAN OIL AND ENERGY REVENUE TO LOWEST POINT SINCE 2020
It comes just 60 days after the G-7 implemented a $60 per barrel cap on Russian crude exports.
The coalition also agreed Friday to set a lower $45 price cap on exports of other Russian oil products that trade at a discounted price, such as fuel oil and naphtha, officials said.
Both parts of the cap mechanism are designed to keep Russian oil products on the market while driving down Russia’s energy revenues, which soared to an all-time high following its invasion of Ukraine last February.
Setting a price cap on any Russian export requires unanimous agreement from both the G-7 and all EU member countries, which U.S. officials said Friday they had secured.
Senior Treasury officials praised the early success of the cap, telling reporters on a call Friday that new data from Russia's Finance Ministry showed its monthly tax revenues from energy sales had declined by 46% in January compared to the previous month, which they attributed to the price cap.
Though Russian crude prices are trading well below the $60 cap set by Western leaders, higher transportation costs, longer shipping distances, and the steep discounts it has been forced to offer to new buyers in China and India have sharply cut into its revenue, pushing Russian oil and energy revenues to their lowest point since August 2020.
Going forward, "reduced state energy revenues will force the Kremlin to make tough choices between whether they will fund their war or stabilize the economy," the Treasury official added.
Still, leaders in Europe have struggled to reach consensus on the cap in recent days.
Concerns have been focused largely on where to set the price of the diesel cap and how a lower cap could risk hurting global supply.
That's partly because the market for refined products is much different than crude. When the G-7 crude oil cap took effect in December, Russia had already rerouted much of its supply to China, India, and Turkey.
But the diesel ban will be much more abrupt, depriving Russia of its main diesel customer overnight. It's unclear where, and to what degree, Moscow will be able to offset those losses or whether the EU will be able to find alternative suppliers to fill the level of imports it has received from Russia. (The bloc imported 220 million barrels of diesel from Moscow in 2022 alone.)
Others have cited concerns about the cost, noting that $100 is well below the price at which Moscow's diesel is currently trading on global markets.
“[The] higher the price cap is set for diesel. It makes it slightly easier for Russia to redirect some of the exports that will no longer be going to Europe,” Energy Aspects analyst Richard Bronze told Bloomberg.
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“But even a very high price cap wouldn’t mean that Russia could find alternative destinations for all of those supplies," he added, "and I don’t think the $100 a barrel is anywhere close to what I’d classify as a very high price cap.”