The US has welcomed the USD 60-per-barrel price cap on Russian oil, describing it as an “important tool” that will benefit emerging markets and low-income economies and further cripple President Vladimir Putin‘s finances used to fund his “brutal invasion” on Ukraine.

The European Union reached a deal on Friday for a USD 60-per-barrel price cap on Russian oil. The Group of Seven nations and Australia joined the European Union in adopting the price cap on Russian oil, aimed at significantly reducing Moscow’s income and President Putin’s ability to continue to finance the war in Ukraine.

Europe needed to set the discounted price that other nations will pay by Monday when an EU embargo on Russian oil shipped by sea and a ban on insurance for those supplies take effect.

“The price cap will encourage the flow of discounted Russian oil onto global markets and is designed to help protect consumers and businesses from global supply disruptions,” US Treasury Secretary Janet Yellen said on Friday.

“The price cap will particularly benefit low- and medium-income countries who have already borne the brunt of elevated energy and food prices exacerbated by Putin’s war,” she said after G7, European Union, and Australia jointly set a cap on the price of seaborne Russian crude oil.

Next week, the Price Cap Coalition will ban a broad range of services- including maritime insurance and trade finance- related to the maritime

crude oil of Russian Federation origin unless purchasers buy the oil at or below USD 60-per-barrel.

Importers who purchase Russian oil at or below the price cap will maintain access to an array of Coalition-country services vital to the oil trade. On February 5, 2023, this ban on services will extend to the maritime transport of Russian-origin petroleum products unless the products are sold at or below a price cap to be announced before February 5.

The US said the price cap is an “important tool” to restrict the revenue Russia receives to fund its illegal war in Ukraine, while also maintaining a reliable supply of oil onto global markets.

This policy is especially critical to make oil supplies available in low-and middle-income countries hit hard by the effects of Russia’s war, the US said in a statement.

“Whether these countries purchase energy inside or outside of the cap, the cap will enable them to bargain for steeper discounts on Russian oil and benefit from greater stability in global energy markets,” Yellen said.

“Today’s action will also help further constrain Putin’s finances and limit the revenues he’s using to fund his brutal invasion. With Russia’s economy already contracting and its budget increasingly stretched thin, the price cap will immediately cut into Putin’s most important source of revenue,” she said.

Yellen said she is looking forward to further close coordination with US allies on the implementation of the price cap, and on their united efforts against Russia’s unprovoked aggression.

The Treasury said the price cap will be of particular benefit to emerging markets and low-income economies that are highly exposed to rising energy prices. Russia’s war in Ukraine has disrupted energy markets and caused widespread economic hardship, from natural gas shortages in Europe to elevated oil prices around the globe.

“The rise in energy prices has proven especially harmful to those economies with heightened vulnerability to energy price shocks. These economies are well-positioned to benefit from the price cap’s stabilising effect on prices for two reasons,” it said.

First, countries in the Price Cap Coalition, are already committed to prohibiting or phasing out imports of Russian oil and will not directly benefit from a lower price.

Accordingly, it is prospective buyers elsewhere – especially emerging markets – that stand to gain directly from low-cost Russian oil, it said.

Second, emerging markets and low-income economies are generally more exposed to price shocks than advanced economies. The price cap therefore particularly benefits importers from these countries by helping stabilise global oil prices, the Treasury said.

On Tuesday, Russian Foreign Minister Sergey Lavrov said that Moscow was not bothered about the price cap set to be imposed by the West on its oil exports.

“We are not interested in what the price cap will be, we will negotiate with our partners directly, and the partners who continue to work with us will not look at these caps and will not give any guarantees to those who illegally introduce them,” he was quoted as saying by the state-run Tass news agency.

Lavrov stressed that there is always a balance of interests in negotiations with India, China, Turkey, and other major buyers of Russian energy resources in terms of timing, volumes, and prices.

“It should be decided on a mutual basis between producers and consumers, and not someone who just decided to punish someone,” the Russian foreign minister said.