EU Countries Urge Lower Oil Price Cap on Russia

BRUSSELS (Reuters) – Six European Union countries on Monday called on the European Commission to lower the $60 per barrel price cap on Russian oil set by G7 nations. They argue that lowering the cap would reduce Moscow’s revenues to fund its war in Ukraine without causing a market shock.

The G7 imposed price caps on Russian seaborne crude and refined products to limit Russia’s ability to finance its invasion of Ukraine. Sweden, Denmark, Finland, Latvia, Lithuania, and Estonia emphasized in a letter to the EU executive arm that targeting oil export revenues is crucial as it is Russia’s main income source.

“We believe now is the time to further increase the impact of our sanctions by lowering the G7 oil price cap,” they stated.

The current G7 caps are set at $60 per barrel for crude oil, $100 for refined products, and $45 for discount products. Andriy Yermak, chief of staff to Ukrainian President Volodymyr Zelenskiy, stressed the importance of price caps in curbing Russian aggression.

Yermak asserted that energy export revenues are the primary source of war financing for the Kremlin, linking the price of oil to the level of Russian hostility. A lower oil price could bring the prospect of peace closer.

The existing price caps have not changed since their introduction in December 2022 and February 2023, while market prices for Russian crude have been below the cap on average. The letter from the six countries pointed out that the international oil market is currently better supplied than in 2022, significantly reducing the risk of a supply shock from a lower price cap.

The letter concluded that given Russia’s limited storage capacity and its heavy reliance on energy exports for revenue, the country has no option but to continue oil exports even at a much lower price.