EU proposes freezing Russian oil price cap until January amid market volatility

The European Commission has proposed keeping the price cap on Russian oil at its current level until January, seeking to avoid a mandatory increase under the European Union’s review mechanism amid a rise in global oil prices following the war in the Middle East.

European Commission President Ursula von der Leyen announced the proposal while presenting the EU’s 21st sanctions package against Russia.

The price cap for Russian oil was set at $44.1 per barrel in January. Under the mechanism, the cap is recalculated every six months at a level 15% below the market price of Russia’s Urals crude.

Von der Leyen said the system “was not designed for market shocks of the kind caused by the closure of the Strait of Hormuz.”

“We propose freezing the adjustment until January next year. This will maintain pressure on Russia’s revenues while giving oil markets time to regain stability,” she said.

Brent crude has traded below $100 a barrel since the end of May. Prices fell to as low as $91 on Tuesday.

By contrast, according to Argus Media data, Urals crude has recently been shipped from Black Sea and Baltic Sea ports at an average price of around $73.5 per barrel.

Western companies seeking to comply with EU sanctions may purchase Russian oil only within the limits of the established price cap. However, most Russian oil is transported by shadow fleet tankers, many of which are themselves subject to sanctions.

As part of the 21st sanctions package, the European Commission has proposed imposing sanctions on an additional 30 vessels linked to that fleet.

The package also calls for a ban on the sale of ships that could be used to transport liquefied natural gas (LNG) to Russia, mirroring restrictions previously imposed on oil tankers.

In addition, the Commission plans to introduce sanctions targeting the fishing sector for the first time. It also said it had prepared what it described as the most comprehensive package of restrictions yet aimed at banks and financial companies, including those operating in third countries.

The proposed sanctions require the approval of all European Union member states before they can enter into force.