EU Moves Closer to a Full Ban on Russian Oil Shipping Services
The European Commission's latest proposal for sanctions on Russia includes a full ban on European maritime services for the shipping of Russian crude oil, driven by the EU's need to generate leverage at the negotiating table on the war in Ukraine. It is a retreat from the incrementalism of the G7 "price cap" policy, which was promoted by former U.S. Treasury Secretary Janet Yellen in 2022 as substitute for a full maritime services ban.
The price cap system created a window for EU-domiciled commodity traders, shipowners, insurers and service providers to engage in the Russian oil trade, without fear of sanctions - so long as the cargo is priced below the cap level, currently $47.60 per barrel in Europe. This window is wide enough that more than a third of Russian oil exports in the Baltic are loaded aboard "legitimate" tankers, per Brookings, with the balance carried by the non-EU shadow fleet.
"Until now, with a price cap, you'd still have exports of oil [with European participation]. With this ban, any export of oil from Russia will be made even more difficult," EC spokesperson Paula Pinho explained Monday. "So that's the logic underpinning this proposal."
In addition, the plan includes sanctions on two specific oil terminals in Georgia and Indonesia that handle Russian crude, sending a message that overseas stakeholders will also be targeted.
Negotiating leverage
The proposal comes against the backdrop of negotiations between the U.S. and Russia over the fate of Ukraine, which has so far offered only a diminished role for the EU. To regain influence and offset a perceived U.S. receptiveness to Russian persuasion, top EU diplomat Kaja Kallas thinks that Moscow must be pushed "from pretending to negotiate to actually negotiate" with Europe. Economic leverage in the form of oil sanctions, if actualized, could move that forward.
"If the Russians think they are getting their maximum goals from the Americans, why should they want to talk to the Europeans?" she told Euronews on Monday. "We will only make demands for them."
In the broader geopolitical context, some analysts are becoming confident that a full EU maritime services ban for Russian oil shipping is coming.
"It now looks increasingly certain that the EU (and likely the UK) will move to a comprehensive maritime service ban on the carriage of Russian crude oil to third countries," said Alexander Brandt, sanctions partner at global law firm Reed Smith, in a statement Monday. "Instead of gradually lowering the oil price cap, EU leaders have concluded that controlling Russia’s oil revenues through comprehensive restrictions on maritime services is necessary to squeeze state profits. Such steps build on measures taken by the UK and U.S. last year, to target the four largest producers of Russian oil."
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There is one foreseeable risk, however. G7 price cap policy led Russian exporters (and their enablers) to build out a giant shadow fleet of under-regulated, under-insured tanker tonnage, bypassing Europe's near-monopoly on financial services for shipping. The safety and security risks of the shadow fleet are well-understood - and could get worse if every drop of Russian oil has to ship aboard a gray-market tanker, Brandt said.
"The impact of these measures, if introduced, remains to be seen and a key danger associated with a full-service ban, is that it might lead to further proliferation of the parallel [shadow] fleet, that has become a source of considerable international concern," he said in a statement.
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