File Photo: An oil tanker is moored at the Sheskharis complex, part of Chernomortransneft JSC, a subsidiary of Transneft PJSC, in Novorossiysk, Russia, on Oct. 11, 2022. AP
The move is the latest part of an international push to limit Russian President Vladimir Putin's war chest for his assault on Ukraine by targeting his key exports.
The caps involve two price levels, $100 per barrel for more expensive fuel like diesel and $45 on lower-quality products such as fuel oil, according to officials.
Sweden, which holds the rotating EU presidency, called it an "important agreement as part of the continued response by EU and partners to the Russian war of aggression against Ukraine."
The EU in December imposed an embargo on Russian crude oil coming in by sea and -- together with its G7 partners -- set a $60-dollar-per-barrel cap for exports around the world.
The second embargo, on Russian fuel, is set to come into force on Sunday or soon after. It targets Russian refined oil products such as petrol, diesel and heating fuel, arriving on ships.
At the same time, the EU and the G7 group of wealthy democracies have also agreed to impose a price cap on Russian shipments of those products to global markets.
The G7 and Australia statement added that the price cap coalition will undertake a review of the crude oil cap in March.
The price caps on those transported products work by establishing a ceiling for the cost of fuel that can be transported on ships.
The price caps agreed upon were in line with a proposal from the European Commission, the EU's executive arm.
It had to balance tough demands from sanction hawks, such as Poland and Baltic nations, against the need to ensure the West does not cut off Russian supplies to world markets entirely, which would send global prices soaring.
EU diplomats called the agreed price levels "well-balanced" and hitting the goal to "reduce Russia's income while guaranteeing access for third countries."
In a separate statement, US Treasury Secretary Janet Yellen applauded the latest decision and said it built on earlier efforts.
"The caps we have just set will now serve a critical role in our global coalition's work... we are forcing Putin to choose between funding his brutal war or propping up his struggling economy," she added.
Kremlin warns of market 'imbalance'
The Kremlin lashed out at the EU ahead of the embargo coming into force, insisting it will "lead to a further imbalance of the international energy markets".
"We are taking measures to hedge our interests against the risks associated," Kremlin spokesman Dmitry Peskov told reporters.
Moscow's war in Ukraine has provided a harsh wake-up call for the EU, which for years had been reliant on cheap fossil fuels from Russia to power its industries.
Brussels says the embargo on crude oil has seen the bloc cut out some 90 percent of Russian imports, after exceptions were granted for supplies flowing by pipeline to landlocked countries like Hungary.
European Commission president Ursula von der Leyen on Thursday estimated during a visit to Kyiv that the existing price cap on Russian oil was already costing Moscow around 160 million euros ($175 million) every day.
On Friday, she said the bloc was readying a new round of sanctions against Russia -- its 10th package since the war started a year ago.
"We must continue to deprive Russia of the means to wage war against Ukraine," she said, also highlighting the EU's import ban on Russian petroleum products from Sunday.
"With the G7 we are putting price caps on these products, cutting Russia's revenue while ensuring stable global energy markets," she said.