EU mulls freezing Russian oil sanctions as fuel shortage looms

The European Union is considering a temporary freeze on its Russian oil price cap mechanism as policymakers worry about a looming fuel shortage as a result of the Iran war disruptions.

The debate comes as the war in the region enters its fourth month, and the Strait of Hormuz remains effectively closed to international shipping.

In a similar move, the UK temporarily eased sanctions on importing Russia oil at the end of May to boost supplies. As IntelliNews reported, global oil inventories are falling at an alarming rate suggesting there may be a supply crunch and a price spike in the coming months if the Iran war is not concluded.

The EU, together with the Group of Seven nations and Australia, is now also taking action. It introduced a $60 price cap on Russian seaborne oil in late 2022 as part of efforts to reduce Moscow’s energy revenues while maintaining the flow of crude to global markets. The measure prohibits European companies from providing services such as insurance, financing and transportation for Russian oil sold above the agreed threshold.

However, after the oil price cap sanctions proved ineffective, more recently the EU introduced a floating rate oil price sanctions cap of 15% below market rates for the Urals blend, Russia’s main export product.

The mechanism is designed to automatically adjust the cap every six months. The current cap stands at $44.10 a barrel and is scheduled for review later this summer, but the cap would rise to around $65 if the current high prices for oil are maintained. EU officials are debating whether to reimpose the $60 threshold, lower it by fiat or abandon the mechanism altogether.

People familiar with the discussions said EU officials are now considering delaying or freezing the next adjustment amid concerns that tightening restrictions during a period of geopolitical instability could contribute to further volatility in oil markets and fuel a new European energy crisis.

The price cap has become a central component of Western sanctions policy. Any decision to suspend the automatic adjustment mechanism would require agreement among EU member states and coordination with G7 partners. Officials stressed that discussions remain ongoing and that no final decision has been taken.