According to a press release from the EU Council, the 18th sanctions package includes a “dynamic reduction” of the cap on Russian oil prices from the current $60 to $47.6 per barrel and introduces “an automatic dynamic mechanism for adjusting the price ceilings on oil and ensuring their effectiveness.” Reuters reports, confirmed by the Estonian Ministry of Foreign Affairs, that this value will be adjusted every six months, such that the accepted price for Russian oil is 15% lower than the global benchmark.
The EU is also imposing sanctions on an additional 105 vessels identified as part of Russia’s “shadow” fleet. As a result, the number of tankers prohibited from entering EU ports and deprived of a wide range of maritime services will reach 444, as stated in the EU Council's release.
"Moreover, the EU is introducing a ban on the import of petroleum products made from Russian oil and arriving from any third country, except for Canada, Norway, Switzerland, the United Kingdom, and the United States, thereby obstructing the entry of Russian oil into the EU market through back channels," the release states. It also mentions that comprehensive sanctions, including asset freezes, travel bans, and resource provision prohibitions, will be applied to Russian and international companies managing the vessels of the “shadow fleet,” traders dealing in Russian oil, and an oil refinery in India, whose main shareholder is Rosneft. This pertains to the Vadinar Refinery, with a processing capacity of 20 million tons per year, which is part of Nayara Energy Limited, where Rosneft owns 49.13%, along with a deep-sea port and an oil terminal with a total throughput of 58 million tons per year, as well as a network of over 6,000 gas stations.
The EU is also implementing a complete ban on operations with the Nord Stream 1 and Nord Stream 2 pipelines, including the supply of goods or services that would facilitate their construction, maintenance, operation, and any future use. Finally, it has been decided to revoke the import privileges for Russian oil in the Czech Republic. Czech authorities announced in April that they had achieved complete independence from Russian oil due to the expansion of the Transalpine Pipeline (TAL), which allowed the country to source oil from the Italian port of Trieste.
Price Cap
Experts surveyed by Forbes are skeptical about the new sanctions package. "Given that the USA has yet to join these sanctions, their effectiveness is in serious doubt," says Maxim Shevyrenkov, head of the raw materials market analysis center at the Institute of Energy and Finance (IEF).
The price cap on Russian oil united the G7 in their economic sanctions against Russia, reminds Stanislav Mitrakhovich, an expert from the Financial University and the National Energy Security Fund. Consequently, he notes that the EU's proposal to lower the cap did not receive support from U.S. President Donald Trump during the recent G7 summit in Canada. "And without U.S. support, the modified cap will be of little significance," says Mitrakhovich. "Some Greek shipowners, currently transporting Russian oil to third countries, for instance, to India, may hesitate and withdraw from this business. However, others will continue to manipulate their reporting, pretending that they are transporting oil at a price that does not exceed the cap at the loading port. The rest will be carried out by the 'shadow fleet,' which will disregard European sanctions."
Concerns also arise regarding the price cap, according to Shevyrenkov from IEF. "It is stated that it will be reduced to $47.6 per barrel, which is unfavorable for Russian exporters, but does not fundamentally change the situation regarding export flows," he says.
Ban on Products from Russian Oil
Most of the announced sanctions measures will be difficult to administer, believes Sergey Tereshkin, CEO of the Open Oil Market platform. "Sanctions against the 'shadow fleet' and the ban on imported petroleum products from countries processing Russian oil are hard to monitor," he says. "Therefore, the impact of these measures, despite their apparent severity, will not exert a serious deterrent effect."
The partial import limitation on petroleum products, particularly diesel, will lead to a redirection of supplies from India to the UK and from there to continental Europe, considers Shevyrenkov. Furthermore, it is challenging to prove that the oil processed in India or Turkey originated from Russia because refineries in these countries will not disclose in their reports that the products they produce are derived from Russian oil, and it is unlikely that anyone will investigate this, adds Mitrakhovich from the Financial University. He also expresses doubt regarding the effectiveness of sanctions against the Vadinar refinery.
"This is a large plant, but following the imposition of sanctions, either shipments to Europe will indeed cease, or intermediaries, perhaps from Arab countries, will find a way to funnel products to Europe, rebranding them as Arab products," says Mitrakhovich. "Or they will find buyers elsewhere in the world."
Nord Streams
The ban on the use of the Nord Streams has minimal impact, as they are not utilized for deliveries to Europe following the September 2022 sabotage, thus Gazprom has incurred no losses, believes Tereshkin from Open Oil Market. Sanctions against the Nord Streams are more of a political declaration, as these pipelines primarily benefited Germany, which planned to develop its gas hub, not Russia, argues Shevyrenkov from IEF.
There is a plan for the EU to abandon Russian gas by the end of 2028 and a roadmap to achieve this, recalls Mitrakhovich from the Financial University. "The formulation of additional measures against the Nord Streams reflects the European bureaucracy's fear that if some compromise is reached between Russia and the USA regarding Ukraine or if leadership changes in some European countries, the plans may change as well," says Mitrakhovich. "Thus, current European bureaucrats are attempting to devise some legal barrier to prevent the Nord Streams from restarting."
Source: Forbes
