Will the EU's New Sanctions on Russian Oil Work?

The European Union recently approved its 18th round of sanctions against Russia, aimed at limiting the Kremlin's ability to fund its war in Ukraine by restricting oil revenues. However, many analysts believe that these measures may not be sufficient to make a significant impact, placing the secondary sanctions threatened by former US President Donald Trump as one of the few remaining options to exert real economic pressure on Moscow.

The new European sanctions included lowering the price cap on Russian crude oil to $47.6 per barrel, down from $60. This means that shipping and insurance companies seeking to avoid sanctions will not be able to handle transactions exceeding this price. The sanctions also prohibited the import of refined oil products from Russian oil, aiming to close loopholes that emerged after the ban on importing most Russian crude and refined oil in 2022. This led to an increase in Europe's imports of fuel from countries such as China, India, and Turkey, where refineries in these countries benefit from discounts on Russian oil.

However, experts believe that Russia has become adept at circumventing sanctions. Since 2022, Russia has been able to build a parallel system of oil tankers, insurance, and payments, allowing it to sell oil at prices higher than the specified cap. In addition, India may continue to purchase discounted Russian oil for domestic consumption, diverting fuel exports that were destined for Europe to new markets.

US Secondary Sanctions: Are They the Answer?

Some analysts believe that the imposition of secondary sanctions by the United States, as threatened by Trump, may be more effective in undermining Russian oil revenues. These sanctions include imposing a 100% tariff on countries that buy Russian oil, unless Russia reaches an agreement to end the war in Ukraine within 50 days. This means that any country buying Russian oil would face significant restrictions on its trade with the world's largest economy.

However, others believe that this move may be risky. If secondary sanctions lead to a significant decrease in Russian oil exports, this could lead to a sharp rise in global oil prices and increased inflation, which no US president wants. This may explain why Russia and oil traders do not seem overly concerned about the threats of increased sanctions.

Conclusion

Although the sanctions imposed by the European Union aim to reduce Russian oil revenues, they may not be sufficient to cut off Moscow's financial lifeline. US secondary sanctions may be more effective, but they also carry significant risks for global energy markets. The future of sanctions on Russian oil remains uncertain, depending on geopolitical developments and risk assessment by Western leaders.