European Union countries have agreed to put a cap on Russian oil prices of $60 per barrel, bringing an end to days of arguments over how hard to hit Vladimir Putin's fossil fuel revenues.

According to EU diplomats, a deal was struck on Friday after Poland, which had been holding out for a harsher cap, came on board.

Under the agreement, countries will ban their insurance and shipping firms from facilitating Russian oil shipments to third countries if they are sold above the capped price.

The system will be reviewed every two months, one of the diplomats said. The aim is for the cap to be set at a level which is at least 5 percent below the market price for Russian crude during the review process, the diplomat added.

The EU plan was drawn up following a proposal from the G7 leading democracies to cap the price paid for Russian oil and is now expected to be implemented widely.

"The EU agreement on an oil price cap, coordinated with G7 and others, will reduce Russia’s revenues significantly," European Commission President Ursula von der Leyen said. "It will help us stabilize global energy prices, benefitting emerging economies around the world."

The key question now is how Russia responds.

The $60 price is higher than the level at which Russia currently sells its crude oil — which is trading at a discount to benchmark prices. That gives Putin room to dismiss the West's move as meaningless. He has threatened to cut production, which could drive up global oil prices, and to not supply countries that sign up to the cap.

EU sanctions coming into force from Monday will ban seaborne imports of Russian oil. The sanctions package also contained a ban on shipping insurance for tankers transporting Russian oil around the world but the price cap would override this, lessening the disruption to markets.

There had been fears that the EU sanctions would trigger a surge in oil prices if shipping insurance had been unavailable. As talks dragged on among EU countries in Brussels, the U.S., which first proposed the cap, intervened in an attempt to break the deadlock. Poland also secured a commitment from Brussels to begin work on a new package of sanctions against Moscow.

Poland, Estonia and Lithuania had been leading demands for a harsher cap to cause maximum damage to Putin's war chest.

"I welcome the EU's political agreement on setting a price cap on Russian oil," Estonia's Prime Minister Kaja Kallas said on Twitter. "Crippling Russia's energy revenues is at the core of stopping Russia's war machine."

She added that Estonia had been hoping for a cap in the range of $30 to $40 a barrel, which "would substantially hurt Russia."

"However, this is the best compromise we could get today," she said. "We will have the first review of the price already in mid-January."