EU Limits on Russian Oil Revenue: Will They Really Bite?

The European Union's latest moves to restrict Russian oil revenue are unlikely to deliver a severe blow, making US President Trump's threatened secondary sanctions one of the few remaining economic levers to pressure the Kremlin.

The EU last Friday approved its 18th package of sanctions against Russia, which Foreign Policy chief Kaja Kallas described as “one of the toughest yet.” These include lowering the cap on Russian crude oil from $60 a barrel to $47.6, meaning that shipping and insurance companies hoping to skirt sanctions cannot handle trades above this level. The new cap comes into effect Sept. 3 and includes a mechanism ensuring it always remains 15% below the average price of Russian oil.

A key addition is a ban on importing refined oil products made from Russian crude. Likely coming into force next year, this ban aims to close loopholes left by the EU pausing most Russian crude and refined oil imports after the Russia-Ukraine conflict in February 2022. This had previously led to a surge in European fuel imports from China, India and Turkey, particularly of diesel and jet fuel.

However, the initial measures had limited effect as refineries in those three countries leveraged the discounts imposed by the price cap to dramatically increase Russian crude imports. According to data from Kpler, the biggest loser from the new ban could be India – which last year accounted for 16% of Europe’s diesel and jet fuel imports. In 2024, Russian crude accounted for 38% of India’s crude imports.

The new ban will exempt net exporters of crude, meaning the biggest beneficiaries are likely to be Gulf oil producers with large refining capacities such as Saudi Arabia, the UAE and Kuwait. These could fill the gap left by Indian refineries and export more fuel to Europe.

Russia Is Adept at Bypassing Sanctions

Since 2022, the West has carefully designed sanctions on the Russian oil industry to avoid triggering severe energy price shocks while limiting the revenue of the world’s third-largest oil exporter. The latter effect has been less than ideal.

In 2024, Russia’s revenue from crude and oil product exports reached $192 billion, well above its defense budget that year of $110 billion. By comparison, its oil export revenue was $225 billion in 2019.

According to estimates by the International Energy Agency (IEA), Russian oil exports fell slightly to 7.23 million barrels per day in June, but thanks to higher global oil prices, revenue increased by $800 million from May to $13.6 billion.

This partly reflects that Russia has found some ways around the measures, including building a vast and opaque system of tankers, insurance and payments, enabling it to export oil at prices above the cap.

The EU's latest sanctions package also added 105 tankers sanctioned for skirting the initial price cap, after 342 had already been sanctioned.

However, Reuters energy columnist Ron Bousso believes Russia may find ways to circumvent the worst effects of the new sanctions, perhaps by expanding the shadow fleet, or by further obscuring oil origins via ship-to-ship transfers in the ocean.

In addition, India may continue to purchase discounted Russian crude to benefit its domestic market while re-routing fuel exports that were bound for the EU to new markets.

Therefore, while the new price cap may theoretically reduce Russian oil revenue overall, in practice, the EU’s new measures are unlikely to cut off Moscow’s financial lifeline.

The Potential Counterbalance of Oil Prices

Bousso said one way to hit Moscow’s financial revenue would be for Trump to implement the secondary sanctions he threatened last week – namely that countries buying Russian oil will face a 100% tariff unless the Kremlin agrees to a deal to end the Russia-Ukraine conflict within 50 days.

These secondary tariffs would mean any country buying Russian oil would have its ability to trade with the world’s largest economy severely limited.

So would Trump really take such a drastic step?

In recent weeks, Trump has voiced strong displeasure at Russian President Vladimir Putin. Given the limited impact of multiple EU and U.S. sanctions rounds on Moscow’s military funding, secondary sanctions may be one of the few effective tools remaining.

However, Bousso said that very effectiveness is the problem in global energy markets.

If the West’s economic war against Russia sharply escalated, leading to a major reduction in Russian oil exports, this could also send global oil prices soaring and increase inflation – two things that the U.S. president certainly doesn’t want to see.

This may be why Russia and oil traders currently seem relatively unfazed, despite the heightened sanctions threat.