Israel-Iran conflict postpones EU plan for Russian oil sanctions

A sudden spike in oil prices, triggered by the conflict between Israel and Iran, has prompted European Union (EU) leaders to reconsider their plans to lower the price cap on Russian oil from $60 to $45 per barrel.

Leaders are concerned that the conflict in the Middle East will further inflate global oil prices, making it unfeasible to tighten sanctions in the current environment.

EU foreign ministers were expected to discuss lowering the price cap at their meeting in Brussels on Monday. However, two diplomats who spoke to Politico stated that this plan is no longer considered viable due to the escalating military tensions between Israel and Iran.

“Given the international situation and volatility in the Middle East, the idea of lowering the price cap is unlikely to gain traction,” one diplomat said. “At the G7 meeting this week, all countries agreed to postpone this decision for now. Prices were quite close to the cap, but now they are fluctuating up and down; the situation is too volatile at the moment.”

Sudden oil price increase disrupts plans

Brent crude, which had been trading below $68 per barrel since early April and had twice fallen below $60, saw its price surge into the 70-79 range after Israel launched a bombardment against Iran last Friday. Russia’s Ural oil was being sold at a discount of more than $10.

European Commission President Ursula von der Leyen noted at the G7 summit earlier in the week that the effectiveness of the current $60 price cap had diminished due to falling prices in the spring.

“However, we have seen oil prices rise in recent days, and the current price cap is serving its purpose,” von der Leyen stated. “Therefore, there is little need to lower it for now.”

Effectiveness of sanctions under debate

The primary goal of the price cap is to reduce Russia’s revenues, as approximately 40% of its budget is allocated to the war. However, achieving this requires a clear oversight mechanism for stricter restrictions, which Russia has largely learned to circumvent using its own “shadow fleet.”

According to an analysis by the Centre for Research on Energy and Clean Air (CREA), a $45 per barrel price cap in May could have reduced Russia’s oil export revenues by 27%, or €2.8 billion. However, experts at the center noted, “This calculation is based on strict and full compliance with the restrictions, which is not at the desired level even now.”

US participation is key

The idea of new sanctions has not found support from Donald Trump, who suggested that Europe should take the first step. According to Maria Shagina, a sanctions expert at the International Institute for Strategic Studies, lowering the price cap without the US would be ineffective.

“Since the price cap was designed as a buyers’ cartel, its implementation requires US participation,” Shagina explained. She argued that it would be better to focus on combating the circumvention of existing restrictions, as “more than 90% of crude oil is currently sold at a price above $60 per barrel.”

Tatyana Mitrova, a researcher at Columbia University’s Center on Global Energy Policy, acknowledged that a lower price cap would be less effective without US involvement. Still, she noted that “the EU and the United Kingdom hold a key advantage in maritime insurance, which would create serious obstacles to sanctions evasion in any case.”

Several European officials familiar with the discussions told Bloomberg that some EU countries believe a lower price cap would only work if the US also participates in the restrictions.