G-7 outline how it is going to work

The European Union on Friday agreed to cap Russian seaborne oil prices at $60 a barrel, after several days of intense negotiations over an appropriate level.

The announcement comes after the G-7 group of advanced economies agreed back in September to impose a limit on Russian seaborne crude and therefore constrain revenues the Kremlin makes from the commodity. However, details on how the cap would work in practice have been debated and hashed out since that point.

Russia, amid its onslaught in Ukraine, has warned that an oil price cap could wreak havoc on the energy markets and push commodity prices even higher.

The price cap will be reviewed regularly to monitor its market ramifications, but it should be “at least 5% below the average market price,” an EU document with details of the cap said.

Negotiations had been held up by Poland, with ministers in Warsaw scrutinizing but then agreeing to the 5% adjustment mechanism. A formal announcement is expected on Sunday.

Energy analysts have warned that the G-7 will need support from other major buyers if the cap is to be effective. China and India, for instance, increased their purchases of Russian oil following the invasion of Ukraine to benefit from discounted rates offered by Moscow.

Kadri Simson, European commissioner for energy, told CNBC in September that China and India should support the measure. “It is unfair to pay excess revenues to Russia,” Simson said at the time.

But there seems to be little appetite from these nations to comply with the cap. India’s Petroleum Minister Shri Hardeep S Puri told CNBC in September he has a “moral duty” to his country’s consumers. “We will buy oil from Russia, we will buy from wherever,” he added.

Correction: This story has been updated to correct the date of the announcement.