Can the EU lower the cap on Russian oil without the US?

Euronews

8 hours ago

The European Union is readying a new round of sanctions against Russia to pile extra pressure on the Kremlin and pressure it to agree to a 30-day unconditional ceasefire in Ukraine, a step that Western allies consider indispensable for serious peace negotiations.
Ursula von der Leyen has already provided an outline of what that package, the 18th since February 2022, is supposed to target: Russia's financial sector, the "shadow fleet" and the Nord Stream pipelines, which are currently non-operational.
On top of that, the president of the European Commission has pitched a downward revision of the price cap on Russian oil to further squeeze profits from worldwide sales, a crucial cash flow to sustain the full-scale invasion of Ukraine.
"We need a real ceasefire, we need Russia at the negotiating table, and we need to end this war. Pressure works, as the Kremlin understands nothing else," von der Leyen said earlier this week after meeting with US Senator Lindsey Graham.
But there's a catch: unlike other sanctions the bloc has imposed on Russia, such as the multiple export and import bans, the price cap has a political and practical dimension that exceeds the institutional sphere of Brussels and stretches across the ocean.
More specifically, to Washington, DC.
The price cap on Russian oil was introduced in December 2022 by the Group of Seven (G7) under the initiative of the Joe Biden administration. It was hailed as an ingenious, ground-breaking mechanism to mobilise the collective power of Western allies and cripple Russia's high-intensity war machine.
As part of the plan, the G7, together with Australia, passed laws prohibiting their domestic companies from providing services, such as insurance, financing and flagging, to Russian tankers that sold seaborne crude oil above a predetermined price.
The secret lay in market power: for decades, Western firms, particularly British ones, have dominated the sector of Protection and Indemnity (P&I), a type of insurance that gives shipowners broad protection and allows them to cover potentially huge costs from any accidental harm caused to the crew, their property or the environment.
Due to the inherent risks of moving oil in high waters, P&I is today considered the norm in maritime trade and a must-have to be accepted in a foreign port. By leveraging their leading firms, the G7 intended to create an extraterritorial effect that would cap the price of Russian oil not only within their jurisdictions but all around the world.
Following intense behind-the-scenes talks, the cap was set at $60 per barrel, a compromise between hard-line and cautious member states.
The strategy only worked up to a point however.
Although the price of Russian Urals oil gradually decreased, it consistently remained above the $60 mark, often exceeding the $70 threshold.
The blatant circumvention was attributed to the "shadow fleet" that Russia deployed at high sea. These tankers are so old and poorly kept that they fall outside P&I standards and rely on alternative, obscure insurance systems that escape G7 surveillance.
By the time the cap entered into force, Moscow "had spent months building a 'shadow fleet' of tankers, finding new buyers like India and China, and creating new payment systems, to the point that its oil does not need to be greatly discounted to sell," Luis Caricano, a professor at the London School of Economics, wrote in a recent analysis.
"What should have been a blow became a manageable problem," Caricano said.
With few sectors in the Russian economy left to sanction, Brussels has turned its sight to the cap as a means to tighten the screws on the Kremlin and secure a ceasefire in Ukraine. The Commission has reportedly pitched a revision between $50 and $45 per barrel, which the UK and Canada are believed to support.
However, the US has so far refrained from endorsing a lower price cap, raising the stakes ahead of crunch talks at the G7 summit in Alberta, scheduled for mid-June.
Now, a tough question emerges: Can the EU dare, and afford, to go it alone?
In the strictest legalistic sense, the EU could, indeed, establish a lower price cap on its own. After all, the G7, as an organisation, lacks regulatory powers: each ally amends its laws individually to fulfil a collective mission.
In this case, the EU introduced new legislation to prohibit EU companies – rather than, say, American or British companies – from servicing Russian tankers that bypassed the $60-per-barrel cap. Similarly, the bloc could now change the text to adjust that prohibition to a tighter price without waiting for other allies to reciprocate.
Here appears the first roadblock: any change to sanctions must be approved by a unanimous vote among member states. It is highly unlikely that all 27 countries would choose to move forward with a lower cap without having an explicit guarantee that Washington will follow suit. Hungary, in particular, has fully aligned itself with the Trump administration and could veto any proposal opposed by the White House.
Even if the bloc managed to overcome internal differences and agreed to a lower cap on its own, more formidable obstacles could impede its success.
The bloc's revised cap would have to co-exist with America's existing cap. This means that one side of the Atlantic Ocean would apply a $50-per-barrel limit while the other side would apply a $60-per-barrel limit, creating a cacophony for all actors involved.
"Different price caps across G7 countries could confuse maritime service providers and weaken overall enforcement," Petras Katinas, an energy analyst at the Centre for Research on Energy and Clean Air (CREA), told Euronews.
"A solo move by the EU could cause friction within the Price Cap Coalition, damaging trust and coordination, both of which are crucial for keeping pressure on Russian oil revenues," Katinas added, warning the project could be rendered "largely symbolic".
The legislative chaos would immediately benefit the Kremlin, which has long sought to exploit loopholes to evade and undermine international sanctions.
Moscow, though, would also face hurdles: the continued crackdown on "shadow fleet" vessels has forced the country to increase its reliance on G7 insurance, which, in theory, could make it easier for the EU to apply the revised measure.
"If the EU alone decides to tighten the screws on the cap, it's an additional constraint on Russia's oil exports but not as tight as with a whole of G7 approach," said Elisabetta Cornago, a senior researcher at the Centre for European Reform (CER).
Besides practical snags and legal matters, there is geopolitics to consider.
One of the reasons why the G7 initiative has fallen short of expectations is that, as the name suggests, it has remained a G7-exclusive plan. Countries in Asia, Latin America and Africa have refused to play along and join the coalition. China and India openly buy Russian crude oil, sometimes to refine it and resell it under a different label.
Having the EU and the US go separate ways would further destabilise the Western alliance and create the impression of a transatlantic break-up. But for many, that is already a reality: the "Coalition of the Willing", born after Donald Trump unilaterally launched negotiations with Vladimir Putin, bears testament to the political divide.
"The price cap was a G7 + EU initiative, and so in its current form, I do not see any pathway in which the EU could adjust the cap without the support of the broader coalition, including the US," said Ben McWilliams, an affiliate fellow with Bruegel.
"That said, the EU is free to implement whatever measures it wants on its own domestic ships and insurance companies, which it could likely encourage the UK to join," McWilliams added. "So the EU can still move ahead – it would just need to be under a different institutional format than currently exists."
This week we are joined by Mika Aaltola, a Finnish MEP representing the centre-right European People's Party, Dorota Bawolek, a seasoned EU correspondent for Polish broadcaster TVP and Ian Lesser, Vice President of the German Marshall Fund, the transatlantic think tank.
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European Trade Commissioner Maroš Šefčovič is trying to defuse the crisis, warning that retaliatory EU measures could kick in as early as July 14.
MEP Mika Aaltola blasted the US approach as 'unfair treatment'.
The OECD also warned this week that Trump's tariffs are dragging global growth to its weakest levels since the COVID-19 pandemic.
In a very tight presidential race, Poland elected conservative Karol Nawrocki, a nationalist and eurosceptic, narrowly defeating pro-EU candidate and Warsaw mayor Rafał Trzaskowski. The result marks a blow for Prime Minister Donald Tusk who has called for a vote of confidence in his government early next week.
Nawrocki's rhetoric — emphasizing national sovereignty, anti-migrant policies, and a rejection of 'Brussels diktats' — has alarmed Europhiles. However, his nationalist platform resonated with a rather divided electorate.
"He's not very presidential", Dorota Bawolek told the panel adding that history shows Poles prefer an 'ordinary guy'.
Finally, the panel discuss the Spanish Prime Minister Pedro Sánchez' diplomatic setback after the EU Council rejected his proposal to make Catalan, Basque, and Galician official EU languages. The move, promised to Catalan separatists in exchange for political support, was rejected by member states over fears of a domino effect involving other regional languages.
Watch the full episode in the player above.