The European Commission has discussed proposing that the Group of Seven price cap on Russian crude remain unchanged at its July review, officials said, as a way to curb additional revenues to Moscow after oil prices rose following the Iran war.
Officials described the concept as one item raised by the Commission during meetings with European Union envoys over the weekend. The measure would be put forward as part of the Commission's preparation for a 21st sanctions package aimed at penalizing Russia for its war in Ukraine.
Under the mechanism created in late 2022, the G7 nations and partner countries - excluding the United States in some implementations - adopted a moving price cap designed to reduce Russian oil income while avoiding disruption to global oil markets. The mechanism allows third-party buyers to purchase Russian crude at or below the cap when using Western shipping and insurance services.
Since its inception the cap has been adjusted downward: it was cut from $60 per barrel to $47.60 to reflect lower average prices, and then revised again to $44.10 in January. Officials cited those prior adjustments while discussing the option to hold the cap steady at the July review so that rising market prices do not translate into increased Kremlin receipts.
Sources told officials that up to 30% of seaborne Russian oil continues to be traded under the price cap. The remainder of seaborne flows is being transported outside the mechanism via the so-called shadow fleet.
The Commission also raised a more prescriptive idea with envoys: that future periodic reviews of the cap should include an upper limit of $60 per barrel, irrespective of the prevailing average price at the time. Those who discussed the concept said this proposal was motivated by expectations that oil prices could remain elevated for the rest of the year.
Separately, the sources noted that Moscow has received fiscal relief since the closure of the Strait of Hormuz - a key Gulf shipping lane that previously accounted for one-fifth of global oil and gas flows before the war began on February 28. That development has been part of the context for Commission talks on tightening measures to prevent a windfall to Russian budget receipts.
Summary
The European Commission may recommend maintaining the current G7 price cap on Russian crude at its July review to limit revenue gains for Russia amid higher oil prices following the Iran war. The proposal surfaced in meetings with EU envoys as a candidate component of a 21st sanctions package. The cap mechanism, set up in late 2022, allows purchases of Russian oil up to the cap when using Western shipping and insurance, and has been reduced twice - from $60 to $47.60 and then to $44.10 in January. Up to 30% of seaborne Russian oil still trades under the cap while the rest moves via a shadow fleet. The Commission also discussed an idea to bar future reviews from exceeding $60 per barrel, citing expectations of sustained high prices for the remainder of the year.
Key points
- The Commission may propose keeping the G7 price cap unchanged at the July review to limit additional Russian revenue - impacts: energy markets, sovereign budgets.
- The cap has been lowered from $60 to $47.60 and then to $44.10 in January; around 30% of seaborne Russian oil continues to be traded under the cap - impacts: shipping and insurance sectors.
- Officials discussed preventing future reviews from exceeding $60 per barrel regardless of average prices, reflecting concerns about sustained higher oil prices - impacts: commodity markets and trade flows.
Risks and uncertainties
- Effectiveness risk: Only up to 30% of seaborne Russian oil currently trades under the cap, with the remainder transported via a shadow fleet, which could limit the measure's reach - sectors affected: maritime logistics, energy trading.
- Market risk: Sustained higher oil prices could still deliver greater revenues to Moscow unless the cap is maintained or externally limited, creating uncertainty for energy markets and national budgets - sectors affected: oil producers, fiscal planning.
- Implementation risk: Proposals to cap future reviews at $60 per barrel regardless of average prices introduce a policy ceiling that may be contested or difficult to enforce across participating countries - sectors affected: insurance, shipping, regulatory compliance.