The European Union aims to diminish the financial proceeds from Russian oil sales
Revamping the Russian Oil Squeeze
Europe's got a bone to pick with Putin's petrol, and they're ready to shake things up. The EU is contemplating a bold move to slash the price ceiling for Russian oil, dipping it from $60 to a stinging $45 a barrel. ThisMs action is set to intensify the pressure on Russia, hoping to force a peace summit and put an end to the war in Ukraine.
Ursula von der Leyen, the EU Commission President, made her stance clear: "Might is the language Russia comprehends. Our message is crystal: this cold war must cease. A genuine truce is required, and Russia must step up to the negotiating table, ready to put forth a sincere proposal," she stated in a press briefing.
Von der Leyen emphasizes that Russia's oil exports still account for a third of its revenue. Cutting this income stream is essential to weaken the Kremlin's war chest.
In mid-May, the EU had threatened crushing sanctions if Russia persisted in its refusal to consent to an unconditional truce, a stance Ukraine had already agreed to. This latest round of sanctions, the 18th since Russia's invasion of Ukraine three years ago, still needs unanimous approval from the EU's 27 members. Yet, Hungary and Slovakia have already voiced their reservations.
The $60 per barrel cap was set by the G7 nations in late 2022. For this cap to be most effective, agreement from all seven major industrialized countries is necessary. The U.S. under Trump, however, has shown reluctance to impose new sanctions on Russia.
Von der Leyen highlighted that the initial measure has been successful within the G7 and wants to keep pushing forward within the same group ahead of the upcoming G7 summit in Canada.
Ghosts in the Tankers
According to the head of European diplomacy, Kaja Kallas, the $60 threshold has resulted in a 30% reduction in Russia's oil revenues. However, Russia has circumvented this ban by employing a 'ghost' fleet of oil tankers, estimated to number over 500 vessels. The EU has already targeted more than 400 of these ghost ships, and plans to add an additional 70 to its blacklist with this 18th package of sanctions.
The EU also intends to add 22 more Russian banks to its list of financial institutions denied access to the international capital market via the Swift system. Moreover, it aims to list other companies, including Chinese ones, that are aiding the Russian military to bypass existing sanctions.
The Never-Ending Gas Game
The EU also has plans for additional sanctions against the Nord Stream gas pipeline, currently inactive, to ensure it cannot be reactivated. "There will be no return to the past," von der Leyen declared emphatically on this point. Europe, particularly Germany, has long been heavily dependent on Russian gas.
Although the EU has banned Russian oil imports, it continues to purchase Russian gas, with France being one of the largest buyers within the Union. The Commission presented a plan at the start of May to phase out Russian gas, whether piped or liquefied, by the end of 2027.
While the EU's plans to cut Russian oil revenue are bold, their implementation faces challenges, particularly without U.S. backing and due to the use of 'shadow' tankers. The EU continues to seek ways to enforce the cap more effectively and limit Russia's financial gains from oil exports.
The EU's contemplated reduction of the price ceiling for Russian oil from $60 to $45 per barrel is part of a broader strategy to exert pressure on Russia, aiming to prompt a peace summit and put an end to the war in Ukraine. This shift in policy-and-legislation is rooted in the understanding that Russia's oil exports constitute a significant portion of its revenue, making it a crucial lever in the politics of war-and-conflicts.
The ongoing war of words and sanctions between the EU and Russia has led to creative evasion tactics by Russia, such as the use of a 'ghost' fleet of oil tankers to circumvent the ban. In response, the EU is expanding its list of targeted vessels and financial institutions, including Chinese companies aiding the Russian military, in an attempt to tighten the noose around Russia's oil industry and limit its ability to fund its military activities.
