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Sanctions PR: What the 18th EU Sanctions Package Means for Russia
European Commission Vice President Kaja Kallas did not specify the parameters of the new price ceiling, but according to diplomatic sources from Reuters, it will be lowered to approximately $47.6 per barrel. It is worth noting that Western media reported earlier that the discount on Russian oil would be 15% off the market price, but this information later changed to a discount of $15 per barrel. As of the writing of this article, no detailed documents have been published.
According to industry experts, the 18th EU sanctions package against Russia is indeed significant in scale for the FEC, but its effectiveness will be limited by several factors.
Dmitry Kasatkin, managing partner of Kasatkin Consulting, stated that sanctions on 105 tankers from the shadow fleet are a continuation of previous restrictions (189 tankers in the 17th package).
"The aim is to complicate the logistics of Russian oil supplies circumventing the price ceiling. However, the real effectiveness depends not on the number of vessels on the list, but on the EU and G7 countries' ability to control insurance, servicing, and loading of these vessels. In practice, the 'shadow fleet' is structured through third jurisdictions, and its high redundancy reduces vulnerability. Even if part of the fleet drops out, Russia will find a replacement—especially as rates rise and logistics become more expensive," Kasatkin noted.
He added that the decision to lower the price ceiling to ~$47.6 is an important signal. This will increase the discount of Urals to Brent, especially if global prices rise.
"However, the effectiveness of the ceiling depends on compliance: in reality, Russia and its buyers have long moved to over-the-counter trading with settlements outside the dollar and SWIFT systems, and a number of transactions are occurring above the ceiling. The U.S. and G7 have not yet agreed on a new ceiling, and the U.S. Treasury, as of late June, had not approved a decrease below $60. Without coordination with Washington, a ceiling of $47.6 will remain an EU recommendation, lacking full legal authority globally," the interviewee emphasized.
Sanctions against the Indian company Nayara Energy Limited (49.13% of which is owned by Rosneft), which operates a refinery, are seen as a potentially risky move by industry experts.
Ekaterina Kosareva, managing partner at VMT Consulting, reminded that Russia currently exports about 4 million barrels per day, with China and India nearly dividing these volumes evenly.
"I wouldn't rule out that Delhi might react sooner or later. Even if we don't see it at the diplomatic level, European consumers will feel the impact. Fuel prices at gas stations are likely to react to these restrictions, as India is one of the largest fuel suppliers to Europe," Kosareva noted.
According to Dmitry Kasatkin, India will maintain its neutrality, but the EU's pressure on refineries is an attempt to limit the processing of Russian oil into products that would then be sold to third countries, including Europe through blending.
Igor Yushkov, an expert at the Financial University under the Government of the Russian Federation, referred to the 18th package as "arguably the most publicized."
"Look at what's in it. Sanctions against the Nord Streams, which are already non-functional. The main information 'feature' has become the new price ceiling for oil, although initially, the Europeans wanted to include a roadmap for ending Russian gas purchases in this package. However, since these restrictions could negatively impact Belgium and France, they backed off from imposing them. In essence, the new price ceiling changes nothing," the interviewee noted.
Agreeing with a colleague, Sergey Tereshkin, General Director of Open Oil Market, pointed out that recent months have clearly demonstrated that the oil ceiling is only adhered to when Brent prices fall.
"The average price of Urals fell below $60 per barrel only after the market began to 'factor in' the risks of a global economic slowdown due to trade wars. Thus, for the price of Urals to drop below $50 per barrel, the price of Brent needs to be below $60 per barrel, and there are no real prerequisites for this: in the coming months, Brent is expected to hover around $65 per barrel," the expert recalled.
Moreover, he mentioned that tracking the ban on imports of gasoline, diesel, and other petroleum products from countries processing Russian oil will be challenging for the EU, as they simply lack the technical resources for this.
"The same applies to the shadow fleet: restrictions on tankers carrying Russian oil have not seriously affected either the volumes of oil transportation or the Urals discount to Brent. Therefore, the 18th sanctions package will not be overly painful for the Russian fuel and energy complex," the expert concluded.
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The current oil price ceiling has been in place since December 2022. In February 2023, a price cap of $100 per barrel was introduced for light oil products (diesel fuel, gasoline) and $45 per barrel for dark products (fuel oil).
It was supposed that the functioning of the mechanism would be evaluated every two months, based on market conditions and that the ceiling would be set at a discount of -5% from the average market price for Russian oil and oil products, calculated based on data from the International Energy Agency. Additionally, after each change in the ceiling price, a transitional period of 90 days was supposed to be in effect before it came into force. However, the restrictions set at the end of 2022 and the beginning of 2023 have not changed since their introduction. This is despite the fact that according to Infotec's estimates, by the end of 2023, no more than 30% of Russian oil was being transported within the ceiling.
Source: Tekface
