By Isaac Levi, Petras Katinas, Luke Wickenden, Panda Rushwood & Vaibhav Raghunandan
Key findings
- Russia’s revenues dropped a marginal 3% year-on-year to a total of EUR 242 bn, proportional to a similar 5% drop in export volumes — a sign of sanctions’ impact diminishing over time, magnified by Russia’s efforts to counter them.
- EU Member States paid EUR 21.9 bn during the third year of invasion, a mere 1% reduction on the prior year.
- ‘Shadow’ tankers assist Russia in generating oil export revenues by circumventing the oil price cap policy. At the same time, the older vessels pose an ecological threat to both European and global waters.
- Russia’s ‘shadow’ fleet, generated one-third of Russian annual fossil fuel revenues in the third year of the invasion, becoming the primary revenue earner.
- Russia’s ‘shadow’ tankers use ship-to-ship (STS) transfers to cut costs, shorten travel time, and boost profits while bypassing sanctions and concealing oil origins, complicating enforcement.
- Tackling the ‘shadow’ fleet is crucial for G7+ countries to regain leverage over Russian oil transport. Expanding sanctions to target more vessels will reduce revenues and help restore the oil price cap mechanism.
Policy recommendations
Strategic approach:
- Strengthen binding targets to prevent backsliding on Russian energy: The EU must reinforce binding targets to ensure long-term energy security and uphold sanctions, preventing any rollback under economic or political pressure.
- Minimize the wind-down period to curb Russia’s revenue: Russia has gained EUR 52 bn during sanction wind-downs, prolonging its war economy and enabling sanction evasion. A shorter phase-out is essential.
Priority I: shut down ‘shadow’ fleet
- Designate a broader network of vessels, owners, insurers, and service providers involved in the shadow fleet transporting Russian oil.
Priority II: Fix the oil price cap policy:
- Set the price cap level at CIF price to prevent circumventions via inflated shipping costs, lower cap levels, require bank statements or sales contracts to verify compliance/prices & diligent investigations of violations from enforcement bodies.
Priority III: Investigate & fine violators, e.g. impose secondary sanctions & fines on re-exporters of Russian oil products in Turkey.
Priority IV: Close the refining loophole & ban imports of oil products from refineries running partially on Russian crude.
Priority V: Prohibit exploitation of exemptions in the EU sanctions as the derogations have no end date
- Ban Russian crude flows through the Druzhba – Slovakia, Hungary & Czechia have viable options to buy non-Russian crude.
Priority VI: phase out Russian LNG from the EU
- Ban Russian LNG transshipment between Member States.
- Require gas traders and importers to disclose the full supply chain, including the original extraction country and company.
- During the wind-down period, a dual cap (volumes & prices) should be introduced.
- Price Cap: Set a cap at €17/MWh, aligning with the breakeven cost for Russian LNG exports to Europe, limiting Russia’s profit margin.