Tapped Out: It is Time to Revisit Oil Sanctions on Russia

Discussions about Russia’s shadow fleet dominate the G7 sanctions community as the country’s oil continues to flow and vessels are suspected of systematically damaging critical undersea cable infrastructure in the Baltic Sea and elsewhere. The focus on the latter increasingly obscures the original intention behind targeting Russia’s oil export infrastructure, namely mounting a concerted effort to restrict Russia’s primary source of revenue for funding its illegal war of aggression in Ukraine.

The success – or otherwise – of the G7’s efforts to reduce Russia ability to raise revenue via the sale of oil is continuously debated. On the face of it, although the market price for Urals oil has declined from a peak of close to $100 in 2022 to $65 today, Russia has generally maintained its pre-invasion volume of exports, albeit those sales are no longer made in G7 countries, with increased sales to India and China compensating. Western policymakers would argue their restrictions mean it is costing Russia more to export oil to these countries, thus reducing profitability and funds available for financing the Kremlin’s war in Ukraine. The KSE Institute calculates that in the period from March 2022 – January 2025, Russia has foregone an estimated $142 billion of oil export revenue.

While the extent to which the revenue reduction objective has been met is less than clear, the impact of maritime sanctions on the way in which Russia exports its oil is most certainly evident as the Kremlin has built a shadow fleet of aged tankers, using services, such as insurance, beyond those it previously sourced from G7 countries.

The approach taken by the G7 in response to Russia’s oil-based revenue raising has become an article of faith, but it is important to recall why oil restrictions were designed the way they were, and whether this logic still holds.

The short answer is that G7 countries wanted to simultaneously reduce Russia’s income from oil sales while also avoiding stimulating a dramatic price rise caused by a reduction in the supply of Russian oil to the global market. Enter the oil price cap (OPC), a seemingly neat way to continue allowing countries to buy Russian oil as long as they paid a maximum of $60 per barrel. At the time the cap was introduced in December 2022, prices for Ural crude were around $65 per barrel. Thus, the G7 was proposing that those wishing to buy oil from Russia were welcome to do so as long as they paid a below market price. The logic was beguiling.

Yet, to avoid adhering to these restrictions, Russia rapidly built a parallel oil export market, most prominently, a so-called shadow fleet of tankers that are mostly beyond their generally accepted usable life. Given the Kremlin used this fleet to continue to export oil at above the OPC, traditional Western insurance companies and other reputable service providers such as flag registries stopped providing their services.

And herein lies the major unintended consequence.

These service providers ensure a high degree of safety and security at sea by scrutinising the operations of tankers. Should the worst happen and there is an accident, they also deliver the finance and other services needed in response. Travelling the high seas with the appropriate insurance to ensure safety and cover disasters such as environmental catastrophes is a core requirement of the International Maritime Organization. Yet despite these risks and Russia’s disregard for conventions and norms related to safety on the high seas, the West’s unwillingness to act decisively in the face of the Kremlin’s flouting of international maritime conventions means that Russia is able to operate with impunity.

So, in short, G7 maritime sanctions have not limited Russia’s oil revenue, have encouraged the development of a response by Russia that has the potential to lead to environmental catastrophe, and have accelerated collaboration between states to develop a permanent parallel oil trading system beyond internationally recognised policies and controls. As one member of the RUSI Maritime Sanctions Taskforce noted recently, the sanctions have certainly had a significant impact, but have they had the impact we wanted? This article argues that the answer to that question is ‘no’ and that it is thus time to rethink the way in which Ukraine’s allies seek to restrict Russia’s oil-related revenue raising.

Lessons from the Past

Restricting national oil income is not a new objective for sanctions policymakers. Iran has long been the target of measures that seek to reduce its revenue from oil in an attempt to force it to desist in its ambition to develop military grade nuclear capabilities. Edward Fishman’s new book ‘Chokepoints’ explores this effort in detail, but in short, two approaches were taken. Firstly, countries were given a grace period from sanctions during which they were required to step down their purchase of Iranian oil and source new supplies; and secondly, payments made for Iranian oil were held in escrow accounts in the name of Iran but not paid directly to Iran. Thus, although this revenue belonged to Iran, its use was controlled by the US.

Could this approach work in the Russia case?

The first thing to note is that the main buyers of Russian oil are China, India, and Turkey. Getting these countries to participate in any G7-led activity against Russia will remain challenging. Asking these countries to source their oil from elsewhere is probably impractical and politically unacceptable. But directing purchase payments to a Ukraine reparations fund controlled by the World Bank (for example) may be more palatable. When peace comes, these funds would contribute to the requirement of Russia to pay reparations for the destruction it has caused in Ukraine and thus building a fund to support these payments would seem logical.

Will the White House Weigh In?

Against this background, the whims and rapid and repeated changes of direction by the new US President must also be considered. He has previously made a direct link between the price of oil and the continuation of Russia’s war in Ukraine, noting at the World Economic Forum in January this year, in remarks directed at Saudi Arabia and other OPEC nations, that ‘You gotta bring down the oil price… That will end that war.’ Furthermore, in a bout of reported frustration aimed at Russia in which he declared himself ‘very angry’ and ‘pissed off’, he also threatened to target buyers of Russian oil with ‘secondary tariffs’. Comments from Kremlin spokesperson Dmitry Peskov, as the global oil price tumbled in early April in response to Trump’s tariff onslaught, underlined the sensitivity of Russia’s economy to oil prices.

Remember the Original Mission

In short, the price of oil is important to Russia and its continued ability to sell oil to willing buyers is central to the continued prosecution of the Kremlin’s war in Ukraine. To-date, the G7 has focused its efforts on restricting the price at which Russia can sell its oil. Well intentioned, this policy has failed and worse, created worrying unintended consequences that threaten environmental catastrophe and the disintegration of a properly controlled global oil transportation market. While a depressed global oil price will make Russia suffer, this will not be achieved via the OPC. Far better is to focus on stepping down global purchases of oil and developing ways – including greater use of sanctions against banks involved in transferring oil payments to Russia – of arresting and immobilising Russia’s access to its oil revenue, money that should be benefiting the reconstruction – not the continued destruction – of Ukraine.

© RUSI, 2025.

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