Why the EU’s latest sanctions risk deepening global energy trade dysfunction

The European Union’s 18th sanctions package against Russia, adopted on July 18, delivered some shock value through a couple of bold, unprecedented measures. But on balance, it risks deepening dysfunction in global energy trade while harming Europe’s own security of supply and credibility as a sanctions enforcer.

In a notable and troubling break from precedent, the EU unilaterally lowered the price cap on Russian crude oil from $60 to $47.60/barrel, even though this measure was originally introduced in December 2022 as a G7-wide initiative.

The bloc plans to adjust the price cap biannually, based on the average of Russia’s FOB Urals price over the previous six months minus 15%. The new scheme, with its periodic assessment of the implementation, international adherence and potential impact of the new mechanism on EU member states, may sound thorough but its enforcement and efficacy are highly questionable.

Risk of co-existing price caps

First, the Trump Administration has not aligned with the new price cap and is unlikely to do so. That matters enormously. The original $60 cap was never particularly effective in constraining the actual price Russia could fetch – Urals crude has traded above and below it based on market fundamentals. However, it did carry deterrent power. The threat of secondary US sanctions discouraged widespread violations among shipping firms, insurers, and commodity traders.

By contrast, the EU’s go-it-alone move risks creating two co-existing caps – one enforced by the US at $60, and one by the EU at $47.60. This is an illogical and unenforceable bifurcation that will only add confusion to an already murky regime. The 90-day grace period for each adjustment adds to the confusion that is inevitable in the implementation. If the US remains on a parallel track,  the market is likely to ignore the lower cap entirely, continuing to operate at or near the $60 level with little consequence.

In practice, it would only further sideline EU-based shipping, brokering, insurance and financing services, making way for an expanded “shadow fleet” of older tankers with opaque ownership structures and patchy insurance coverage.

The package’s second major pillar – a restriction on refined product imports from third countries that refine Russian crude – is even more problematic.

Major hole in EU's refined fuel import system

Going forward, the EU will accept refined product imports only from a small whitelist: Canada, Norway, Switzerland, the United Kingdom, and the United States. That group is woefully insufficient to meet the region’s fuel demand. Our analysis of Vortexa data shows that the five accounted for just 1.26 million b/d or just under 38% of the EU’s refined product imports from outside the 27-member bloc, averaging around 3.34 million b/d over the first six months of this year.

Other countries may qualify if they are net exporters of crude, which means Saudi Arabia, Kuwait, the UAE, Qatar and Oman could continue shipping products to the EU. Suppliers from these countries may need to attest that their product has not been derived from Russian crude. The five countries supplied 656,000 b/d of refined products on average to the EU in the first half of 2025, or about 20% of the latter’s imports.

That leaves a 42% hole in the EU’s refined fuel import system, with no realistic, near-term workaround.

The exclusion of India and China as net importers of crude in theory aligns with the EU’s goal of avoiding Russian molecules. The two are major buyers of Russian crude. But the net crude exporter criterion also shuts out suppliers like South Korea, which does not buy any Russian crude and is a small products exporter to the EU.

The significance of Russian molecules

The maths is obvious – if the EU is to continue receiving the refined product volumes it needs from the overseas markets, it cannot avoid Russian molecules. They will find their way into the bloc, albeit through convoluted supply chains that entail higher cost, longer shipping times, and reduced flexibility. The risk of inefficiency, disruption, and even localised fuel shortages cannot be ruled out, particularly if demand spikes during the winter or amid geopolitical shocks.

If it is a principled stand that the EU is taking with its oil product import restrictions, it is at odds with the bloc’s continued purchases of Russian LNG, uranium, nuclear fuel assemblies and services, fertilisers, timber and wood products, as well as nickel, palladium, titanium and other strategic metals.

If the European leaders are hoping to make a major dent in Moscow’s oil revenues, they should know from the experience of the past three years that it won’t happen – Russian and global supply will remain the same, only the flows will be rewired to circumvent the new rules. However, in the process, the EU may be jeopardising its own supply security.

Complexity without coherence

Rather than refining and reinforcing the existing sanctions regime, the EU has opted to layer on complexity without coherence. The new measures appear untethered from the practicalities of enforcement or the realities of global trade – a move that may undermine sanctions credibility, not enhance it.

Russia has developed a “certain immunity” to such measures, the Kremlin spokesman Dmitry Peskov said in response to the sanctions package. Judging by the reaction of benchmark crude prices, which have been edging lower since the EU announcement, the oil market is clearly not expecting any major disruption in Russian supply. Without a material drop in export volumes, the only path to lower Moscow’s oil revenues would be a fall in prices. And that is dictated largely by global supply-demand fundamentals.