EU delays Russia sanctions as oil price cap remains unresolved

(Bloomberg) – The European Union failed to endorse a 21st sanctions package against Russia on Monday, putting the bloc at risk of undermining one of its key tools to restrict the Kremlin’s oil revenue.

The main points of contention were restrictions on the transport of Russian liquefied natural gas and measures regarding Austria’s Raiffeisen Bank International AG, according to people familiar with the matter who spoke anonymously to describe the private talks. 

An agreement to freeze the bloc’s floating price cap on Russian oil—a central element of the package—was also elusive, despite a looming Wednesday deadline to reset the limit. Without action, the ceiling will likely jump well above the current $44.10 level given the high global fuel prices, hindering the tool’s effectiveness. 

EU ambassadors can return to the issue at a meeting on Wednesday. 

The ongoing delays prompted hand-wringing from the EU’s more hawkish members that individual country’s economic interests were triumphing over the collective need to pressure Russia. Foreign ministers had been aiming to finalize the sanctions on Monday, but couldn’t overcome their disagreements during a series of weekend talks.

“We really need to take this short-term pain for long-term gain,” EU foreign policy chief Kaja Kallas said after Monday’s meeting.

Separately, ministers did agree to 250 new listings targeting banks, crypto operators and tankers allegedly enabling workarounds for Russia—part of the bloc’s listings that are updated on a rolling basis outside of the sanctions packages. 

“The financial backbone of Russia’s war machine is the main target,” Kallas said.

Kallas insisted the 21st package was also “quite close,” but cautioned that she couldn’t guarantee a decision on the oil price cap by Wednesday’s deadline.

“Our aim is to have an agreement,” Kallas said. “If we don’t have an agreement we start to work on a plan B. But for right now we work on plan A.”

The EU adopted the floating oil price cap last year to ensure that the ceiling would always remain 15% lower than the average market rate for Russian Urals crude. Under the cap, which is reset every six months, European firms are banned from providing services such as insurance and transportation for oil sold above the threshold. 

The idea worked until the U.S. and Israeli strikes on Iran squeezed the oil market and sent prices soaring.  

Some maritime-focused countries also raised concerns about proposed changes to rules around shipment of Russian LNG to non-EU countries.

The package also includes a contested proposal to limit Russian combatants from entering the EU. Kallas said “the work will continue” on that measure. 

“Clearly this is a risk to our own security,” she added.

The European Commission, the EU’s executive arm, initially proposed the 21st sanctions package on June 9—the latest in a series of restrictions meant to cut Moscow’s revenue since it launched a full-scale invasion of Ukraine in 2022. 

Earlier in the day, Lithuanian Foreign Minister Kęstutis Budrys urged countries to stay the course. 

“We see that with each new package, the more economic interests of member states are taking the lead in the discussion,” he said ahead of the meeting. “It’s a very dangerous trend.”