EU Targets Russian Oil Revenues with Stricter Sanctions and Lower Price Cap

The European Commission has proposed reducing the price cap on Russian oil exports in a bid to tighten sanctions, further restricting the Kremlin’s revenue streams. The proposal, led by Commission President Ursula von der Leyen, suggests lowering the cap to $45 (£30) per barrel, down from the current $60. This measure is intended to reduce Russia’s ability to finance its ongoing war efforts, as oil accounts for a significant portion of its government revenues.

The $60 price cap was initially introduced by the G7 in December 2022, when oil prices exceeded $100 per barrel. However, with oil prices dropping to a four-year low of $59.77 in April, the cap has reportedly been ineffective. The price of Brent crude has since rebounded to approximately $67 per barrel, prompting calls to reassess the pricing strategy.

Von der Leyen expressed confidence that the G7 would adopt the reduced cap, affirming that it would “restore its effectiveness” and ensure sanctions remain impactful. She emphasised that such measures are critical to pressuring Russia into engaging in meaningful negotiations towards a lasting peace settlement. Republican Senator Lindsey Graham has also voiced support for aggressive sanctions, proposing severe penalties on goods imported from countries that purchase Russian oil.

The Commission has simultaneously increased pressure on Russia’s so-called “shadow fleet” of tankers, which has been facilitating oil exports to countries like India at prices exceeding the capped rate. These measures include targeting ship captains—such as an Indian national listed in draft sanctions—and expanding the sanctions list to 400 tankers. EU officials estimate that the shadow fleet now includes approximately 800 vessels, a significant growth from just 100 two years ago.

Kaja Kallas, the EU’s foreign policy chief, noted that sanctions on the shadow fleet have already yielded notable results, restricting the ability of these tankers to access ports and imposing operational challenges. Following the May sanctions package, which banned over 189 shadow fleet tankers from EU services, Russia’s oil export revenues from key routes like the Black Sea and Baltic Sea declined by 30 per cent within a week.

Additional proposals within the EU’s 18th sanctions package include restrictions on doing business with companies involved in the Nord Stream pipelines. Nord Stream 1 was rendered inoperative after underwater blasts, while Nord Stream 2 remains unlicensed. The proposed restrictions aim to prevent international investors from renewing ties with such projects, further isolating Russia economically.

The Commission is also pushing for a ban on transactions with 22 Russian banks, cutting them off from the Swift financial messaging system. Eurozone leaders have underscored the necessity of escalating sanctions, asserting that Russia will only respond to collective strength. These measures, however, require unanimous approval from the EU’s 27 member states.