The European Commission has proposed a floating price cap on Russian crude oil set at 15% below the average global market price over the previous three months, European Union diplomats said on July 11, reports Reuters.

The change, potentially part of the EU's 18th sanction package, is intended to limit Russia’s oil revenues and starve the budget of funds to pay for war in Ukraine. The new cap would replace the current $60 per barrel cap established by the G7 nations in December 2022.

The proposal comes after oil futures dipped below $60 earlier this year, making the cap ineffective as if prices are below the cap European shipping companies are legally allowed to carry Russian oil and many did. The Brent price has since recovered to around $70 following the end of the 12-day war between Israel and Iran.  Russia's flagship Urals blend traded at $58 per barrel on July 11, still within the cap, as this applies to the heavily discounted Ural price, not Brent.

The EU has been pushing hard to rerate the cap and earlier suggested it be lowered to $45 as part of the stalled eighteenth sanctions package, but that was resisted by the US which is worried about the price of petrol at the pump rising ahead of the midterm elections in 2026.

The new floating rate cap would be adjusted quarterly in line with average market prices, according to the diplomats, who spoke to Reuters on condition of anonymity. They added that technical discussions were ongoing, but the flexible model had helped ease concerns from key EU maritime states, including Malta, Greece and Cyprus that are all making money from shipping Russian crude and oil products.

While Greece and Cyprus have reportedly ceded under EU pressure, Malta remains opposed, according to a report by Euronews. 

In addition, securing the support of Slovakia and Hungary could be more difficult. Slovak Prime Minister Robert Fico previously demanded the EU abandon plans to phase out Russian energy imports by 2027 altogether, Euronews reminds.

However, the oil price cap sanctions have proved to be almost entirely ineffective and not one barrel of Russian oil has been sold under the $60 cap. Russia successful rerouted all its oil exports to Asia, which is ignoring the sanctions. In addition, Russia’s shadow fleet has effectively avoided the sanctions.

Despite months of lobbying, the US still has not agreed to adjust the existing price ceiling in any way. “The Europeans have pushed ahead on their own,” one diplomat said.

The Kremlin responded to the new proposal by stating it has “good experience in tackling challenges such as a floating Russian oil price cap,” according to Reuters.

The 18th EU sanctions package could blacklist another 77 Russian ships, block Russian-origin oil product imports, disconnect 22 more banks from SWIFT, and formalise bans on using Nord Stream pipelines, according to Euronews.