The European Union and 12 partner countries met in Brussels this week to discuss the effectiveness of Western sanctions on Russia. The European Commission, the EU’s administrative arm, said that the EU was looking for ways to strengthen the G7 price cap on Russian oil.
The G7 and imposed a $60 a barrel price cap in December 2022 – an action which had a number of consequences, many of them unintended.
The sanctions blocked access to Western shipping services and insurance if Russian-sourced crude oil was purchased at more than $60 a barrel. The idea was that this would reduce Russia’s ability to finance its war in Ukraine, without cutting off energy supplies to the west and thus causing an energy crisis and a spike in inflation.
The unintended consequences have turned out to be more significant. While Russia has managed to maintain its earnings levels from energy exports, the west has seen the emergence of a significant “shadow fleet” that is sailing the high seas without any links to western insurance or finance. The sanctions have also seen a significant increase in tanker demand, as the oil has been travelling longer distances. The west, for example, has been importing refined oil products from India, which started life as crude oil from Russia. This does not breach sanctions, but it does mean crude oil and refined oil product tankers are travelling many more miles than they used to.
The US and the EU have been implementing round after round of sanctions, adding new companies, individuals and vessels to the sanction lists. Most recently the target has shifted to LNG, using slightly different tactics and to rather greater effect.
EU sanctions envoy David O’Sullivan, who led the meetings. Said that “this is the fourth time we meet in Brussels…there is more that needs to be done and relentless enforcement is where we all should focus on now”.
The EC said Russia had spent nearly half its federal budget on defence and security and that Russia was believed to be paying over 130% more for semiconductors and over 300% for machine tools via Turkiye and China than before its 2022 full-scale invasion of Ukraine.
In other words, the real beneficiaries of the sanctions have been third-party countries – India, China, Turkiye etc. Russia and the west have suffered to a roughly equal degree – an annoyance, but not fatal.
With the market price of Urals Crude falling again below $60 a barrel, it has become easier for unsanctioned vessels to move Russian oil without breaching the sanctions rules.
Last week O’Sullivan said the EU would look at targeting specific financial institutions and the transit of products from southeast Asia through China that are being used by Russia’s military.