Can the EU Reduce the Russian Oil Cap Independently of the US?

The European Union is gearing up to impose a new wave of sanctions against Russia, seeking to exert additional pressure on the Kremlin to secure a 30-day unconditional ceasefire in Ukraine. This latest round of sanctions will be the 18th since February 2022 and focuses on critical areas such as Russia’s financial sector, its “shadow fleet,” and the non-operational Nord Stream pipelines. European Commission President Ursula von der Leyen has emphasized the importance of achieving a genuine ceasefire and engaging Russia in meaningful peace negotiations. She believes increased pressure is essential, stating that the Kremlin responds only to such measures.

Central to this new sanctions package is a proposed downward revision of the price cap on Russian oil, a key revenue source for sustaining Russia’s military actions in Ukraine. Initially set at $60 per barrel by the G7 under U.S. President Joe Biden’s administration, the price cap was designed to mobilize Western allies to diminish Russia’s war efforts. The cap involves legal restrictions preventing G7 nations and Australia from providing services like insurance to tankers selling oil above this threshold. However, the plan has not been as effective as intended, as Russian oil prices have mostly remained above the cap, aided by a newly formed “shadow fleet” that circumvents G7 regulations.

Despite a general decline in the price of Russian Urals oil, it remains resilient due to the shadow fleet’s operations, which avoid standard insurance protocols through alternative systems. This has allowed Russia to find new buyers, notably China and India, while maintaining high prices for its exports. As Brussels seeks to tighten sanctions around the oil cap, it has proposed revising the cap to between $50 and $45 per barrel, a plan supported by the UK and Canada but lacking U.S. endorsement. This discrepancy in international positioning raises questions about the bloc’s ability to proceed independently.

Legally, the EU could implement a lower price cap on its own; however, it requires unanimous approval from all member states, complicating the process. Hungary has shown alignment with U.S. policies, making it a potential roadblock for the measure. Even if the EU agrees to lower the cap unilaterally, it would result in divergent regulations between the EU and the U.S., which could create confusion for maritime service providers and weaken overall enforcement of the sanctions. Concerns have been raised that such a unilateral action could harm the unity of the Price Cap Coalition, ultimately benefiting the Kremlin by creating new loopholes.

Moreover, there are geopolitical considerations at play. The initial G7 initiative has struggled due to non-cooperation from countries in Asia, Latin America, and Africa, many of which continue to purchase Russian crude. If the EU were to diverge from U.S. policies, it might further fracture the transatlantic alliance. The essence of the current coalition lies in its G7 + EU framework, and any moves by the EU to shift the stance on the oil cap without U.S. collaboration could undermine the initiative’s effectiveness.

Ultimately, while the EU retains the option to enact its own sanctions, this approach introduces the risk of complications and inefficiencies. It may necessitate an alternative institutional structure for collaboration with other countries, including any potential partners like the UK, in addressing the complex landscape of global oil trade and sanctions enforcement against Russia. As the situation develops, the EU must navigate these intricate legal, geopolitical, and economic landscapes to bolster its sanctions strategy effectively.