The U.S. will not back an EU proposal to impose a price cap on Russian oil that seeks to curb revenues for Russian President Vladimir Putin's war machine, according to Bloomberg.
Russia could also benefit from the spike in oil prices following Israel's attack on Iran, a major producer of the commodity.
Newsweek has contacted the White House for comment.
Revenues from fossil fuels form the core of Russia's fiscal planning. As well as targeting Russia's natural gas, the European Commission's 18th sanctions package proposed lowering the cap on seaborne Russian oil from $60 to $45.
The EU measures, which also target Russian businesses and banking, requires the backing of all 27 members. The proposal on Russian oil would need the support of the G7, which meets later this month.
Bloomberg's report that Washington will not back the move deals a blow to Western hopes of limiting Moscow's means to fund its aggression in Ukraine, especially after oil prices rose following hostilities between Israel and Iran.
The G7 introduced the $60-a-barrel cap that restricts the price Russia can earn from its seaborne oil. But it has not been effective in curbing the Kremlin's revenues since coming into effect in February 2023, partly because of Moscow's sanctions-busting "shadow fleet" of older vessels and a slump in oil prices.
The European Commission proposed this week to drop the cap to $45, with High Representative Kaja Kallas suggesting that because Russian oil mostly transits the Baltic and Black Seas, U.S. support for the measure is not essential.
An accord involving all G7 nations would be more effective because of the strength of U.S. enforcement, but the U.S. opposes dropping the price cap, Bloomberg reported, citing unnamed sources.
Oil prices surged following Israel's strikes against Iran, and West Texas Intermediate crude futures advanced by more than 7 percent to settle near $73 a barrel, the biggest one-day jump since March 2022.
The Institute for the Study of War said on Friday that the oil price rise may increase Russian revenue from oil sales and improve Russia's ability to sustain its war effort in Ukraine, delivering a boost to Putin.
The Washington, D.C., think tank said Moscow might be able to leverage sudden oil price rises to weather economic challenges and finance a protracted war in Ukraine. This is notable given the concerns Putin previously voiced that any reduction in the oil price would likely risk destabilizing Russia's economy.
Nikos Tzabouras, a senior market analyst at Tradu.com, told Newsweek that although prices are set to rise, sustained hikes would require disruption to supply chains, and the U.S.'s denial of involvement in Israel's strikes keeps hope alive for a contained conflict, keeping downward pressure on oil.
A sustained upside would require actual disruptions to physical flows, such as damage to Iran's oil infrastructure or a blockade of the Strait of Hormuz, a key global chokepoint, Tzabouras added.
The Institute for the Study of War said in a report on Friday: "Oil price increases following Israeli strikes against Iran may increase Russian revenue from oil sales and improve Russia's ability to sustain its war effort in Ukraine."
Nikos Tzabouras, a senior market analyst at Tradu.com, told Newsweek: "The U.S. denial of involvement offers a possible off-ramp, keeping hopes alive for a contained conflict and continuation of nuclear talks, which could pressure oil."
Allen Good, the director of equity research at Morningstar, told Newsweek: "We expect, absent a wider war, today's rise in prices will likely prove to be a sell-the-news event. Oil markets remain amply supplied with OPEC set on increasing production and demand soft."
The G7 summit is expected to discuss the oil price cap proposal when it meets in Alberta, Canada, from Sunday. The EU may try to proceed with the measure even if the U.S. rejects the proposal.
U.S. President Donald Trump and his officials will make the final decision, Bloomberg reported. Meanwhile, markets continued to eye the effects the hostilities between Iran and Israel are having on oil prices.