Why EU is planning freeze on Russian oil price cap
What's the story
The European Union (EU) is mulling a temporary freeze of its price cap on Russian oil, in light of the ongoing Middle East conflict. The bloc's current price cap mechanism was introduced last year, setting the limit at 15% below the average market rate for Russian Urals crude every six months. Now, this could be revised due to skyrocketing oil prices amid the war in the Middle East and effective closure of the Strait of Hormuz.
Review process
Current price cap set at $44.10 per barrel
The current price cap, set at $44.10 per barrel, is due for review later this summer. The next review in July could see the cap rise to at least $65 per barrel, higher than the previous G7-set threshold of $60. This comes as European firms are prohibited from providing services such as insurance and transportation for oil sold above this threshold under the existing cap mechanism.
Sanctions package
EU's sanctions package
In response to the soaring oil prices, the EU is considering freezing the price cap at its current level or suspending dynamic and automatic increases until year-end. These measures are part of the bloc's 21st sanctions package since Russia invaded Ukraine in 2022. The new measures also include targeting more banks, oil traders, refineries, and crypto operators in third countries that Moscow uses to bypass EU restrictions.
Sanctions expansion
Expansion of sanctions to include tankers in Russia's covert fleet
The EU also plans to expand its sanctions to include about 20 more tankers in Russia's covert fleet. This would eventually be extended to ships carrying liquefied natural gas (LNG), restricting Moscow's ability to create a shadow fleet for LNG. However, the new sanctions are unlikely to include a full ban on maritime services due to opposition from several member states.