Who will be hit by the sanctions tsunami?

The USA and the EU are trying to remove Russia from the global energy market. But by waging this tough sanctions fight and rewriting the rules of the game, they are rather discrediting themselves as reliable trading partners. And creating a demand for a new system of hydrocarbon trading.

A new “season” has begun in the sanctions “series.” The European Union passed the 18th package of sanctions, followed by new UK sanctions. Donald Trump has also emerged from the shadows. If earlier he preferred to negotiate with Russia, now he too is verbally moving to hard pressure. 100% tariffs are promised on all shipments of goods to the USA from countries that buy energy from Russia and do not help Ukraine. Literally starting next week. How destructive will the new sanctions be for Russian oil and gas?

Let’s start our analysis with Europe. For its sanctions are already legislated, while Trump prefers verbal interventions.

Under President Trump, the European Union and the United Kingdom have discovered the need to assume the role of “first violin” in sanctions policy against Russia. After all, at the beginning of his second presidential term, Trump expressed his willingness to resolve the conflict in Ukraine without new sanctions. And Europe had to become the main Western “hawk” regarding Russia.

The most striking example is the dynamic cap on Russian oil prices. The decision was prepared by Brussels and London for June’s G7 summit in Canada and was supposed to be common to the G7 countries, but Trump left the summit because of the need to address the Iran–Israel conflict. As a result, the EU had to include a dynamic price cap in the 18th package of sanctions, and then the UK also prescribed similar measures in its legislation. But the USA never joined them. Despite Trump’s new threatening rhetoric.

The previous cap prohibited companies that recognized G7 sanctions from participating in the maritime transportation of Russian oil if the Urals FOB price, i.e. the cost of oil at the port of shipment, was above $60 per barrel. The idea behind the dynamic price cap is that when oil prices fall globally, the cap should also change so that Russian oil is always 15% cheaper than global benchmarks (real-time revision of the price cap). According to the version of the EU and UK authorities, the updated cap will come into effect on September 2, 2025 and will initially be $47.6 per barrel. The EU and UK authorities have never provided a complete calculation formula, which would give this exact price parameter. All the while, the Urals FOB price at the end of July in Primorsk and Novorossiysk was about $56–57 per barrel.

An attempt by the EU and the UK to apply the modified price cap without US assistance would raise many difficulties and doubts — whether Europe even has sufficient tools to create problems for price cap violators (otherwise the very point of threats is lost). Roughly speaking, it is still unknown who those Greek shipowners are more afraid of — the “native” European authorities (collective Brussels) or the American OFAC, which strictly requires the provision of reporting documents.

And in general, attempts to implement the price cap with reliance on FOB price is a very controversial approach. The fact is that in real oil supply contracts, the FOB parameter does not appear at all — buyers represented by Indian or Turkish refineries do not want to take on the problem of oil delivery. Therefore, they buy oil on DAP (delivery at port) terms. FOB is essentially a virtual quote, calculated by Argus, without fully disclosing the methodology, but apparently basing it on the deduction of freight and insurance costs from DAP.

From the real business standpoint, all this means that shipowners, traders, and insurers can write any FOB parameters in their reporting papers (to the same EU regulators) — it will be impossible to check them in practice, except by referring to Argus calculations. In reality, this could mean either the EU’s refusal to even attempt hard compliance or a conscious shift to a blind-eye policy, where EU officials pretend that they do not notice any violations. For PR purposes, the “regular tightening of sanctions” theses will be produced at the level of Brussels.

In June 2025, about 40% of Russian oil sea transportation was carried out by vessels of G7 countries or those with insurance coverage in these countries. These are primarily tankers owned by Greek shipowners and insured with the UK P&I Club. This is the highest level since the summer of 2023. The reason is clear: in spring–summer, Urals FOB prices in Baltic and Black Sea ports were below the cap of $60 per barrel. However, for almost all of 2024, FOB prices have been above the cap. And from February to August, they were noticeably higher, not falling below $65 per barrel (in April, for example, the average FOB price in Primorsk was $72.77 per barrel). However, transportation with the participation of Western tankers did not stop during this period either. Although it was obvious that the cap wasn’t working. S&P Global’s estimate of the lowest figure was around 20%. So, even in the conditions of the obvious violation of the price cap principle, approximately every fifth barrel of Russian oil was exported by sea with the help of ships from the G7 countries or with insurance from these countries.

The ban on imports of petroleum products made from Russian oil in third countries (an exception is made for refineries located in Western countries) is not clear enough and represents a potential problem for the EU itself. For the first time, the EU is attempting to “play America” by trying to make its sanctions cross-border. However, on this path, the European Union is met with several obstacles and contradictions at once.

It is not clear how the EU will be able to prove what kind of oil was used to produce the motor fuel in India that later came to Europe. Indians are unlikely to let EU inspection teams into their factories. At the same time, refiners in India or Turkey may start “drawing balances” (pretending that oil products from Russian oil went to the domestic market of these countries, while oil products from other sources were sent for export to the EU) in order to maintain politeness and not to quarrel with the EU once again.

Of course, if we set a real goal to find and punish violators, it is quite possible to prove the fact of “drawing balances.” For example, buyers of Russian oil have refineries that are tuned specifically to it in order to maximize margins. Heavy Russian oil is especially good at making diesel — and it will be very difficult to pretend that, for example, this diesel was produced from American shale oil (light shale oil is more likely to yield light oil products). But the question is whether in reality the EU will try to find and punish the guilty parties, because it could thus turn important countries of the Global South against itself and get a diesel crisis in Europe, while reducing the volume of usual supplies. The EU gets about 15% of its diesel from India and Turkey, which refine Russian oil. Hence, by the way, the decision to postpone real measures to ban imports of “diesel from Russian oil” for several months (until January 21, 2026). And this is a very serious provision, showing that Brussels itself is wary of its own sanctions.

Yes, there is already information pressure on India. One-off deals like the purchase by private refiner Reliance Industries Ltd (India’s largest supplier of diesel to the EU) of a shipment of Murban crude from Abu Dhabi is being touted as evidence of India’s pivot away from Russia to the Middle East. Although it is actually a one-time deal of one million barrels with a delivery date in September. Russia, on the other hand, in just one day supplies India with oil in a volume twice the size of this deal.

Expansion of the blacklist of tankers (a traditional measure within the framework of the EU sanctions packages) does not yield much result either, given the existing practices of transshipment of oil from conditionally “shadow” tankers to “clean” tankers somewhere off the coast of Arab countries or on the high seas. Thus, after transshipment from a sanctioned tanker to a “clean” tanker, say, in the port of Fujairah in the UAE, that tanker, not subject to any measures, can go on to Mumbai.

The EU is trying to “play America” without American resources. EU sanctions have become cross-border, as Brussels is trying to put pressure on third countries by banning the supply of oil products made from Russian oil. Some Chinese banks were also hit by the sanctions, as well as an Indian refinery with a serious stake in Rosneft. However, Europe does not have the same political weight as the USA.

Then it turns out that Trump’s potential sanctions should certainly scare Russian oil and gas companies. But it’s not all linear here either. Apparently, Trump’s threats are addressed not even to Russia. But primarily to China and India. The USA is having some tough negotiations on a big tariff deal with these countries. And perhaps the new tariff threats should make them more cooperative. China, however, has already indicated that it will not give up trade with Russia, and Trump’s threats will not scare it. China ended up getting an extension for another 90 days of the “tariff truce.” For another three months, the countries will seek a compromise on tariffs. Thus, Trump won’t impose 100-percent duties against Chinese shipments during this period. Because that would mean an immediate return to the trade war. And it’s not entirely clear who will come out of it victorious (it probably won’t spare both sides).

That leaves India. Not surprisingly, Trump is threatening it with 25% tariffs at the same time as sanctions for buying Russian oil if there is no deal in the next few days.

At the same time, it is simply naive to expect that India and China will really get scared and completely stop buying energy from Russia. Russian crude oil exports to India alone amount to about 2 million bpd, with about the same amount going to China by sea and pipe. Finding 4 million free barrels of oil per day on the market today is simply not possible. China is also the largest consumer of Russian gas. The Power of Siberia project will reach its planned maximum of 38 billion cubic meters this year. And that’s not counting Russian LNG.

The Indian oil minister has already made a statement, which got spread throughout the media, that India will find other sources of oil if needed. But in reality, this statement does not commit the authorities in New Delhi to anything. All market players realize that India will simply not be able to replace Russian supplies at a moment’s notice. Perhaps India will sign some abstract commitment to increased energy purchases from the USA — but in the longer term. And at the same time see how Europe will solve the Ursula von der Leyen challenge. She placed a commitment on the EU to buy $750 billion worth of energy from the USA over the next three years. While the EU bought about $80 billion worth of it from the USA last year.

Even assuming that India starts substituting Russian oil with supplies from the Middle East, for example, its refining industry will have to face a very different pricing reality. In May, the price difference between oil from Russia and, for example, from Saudi Arabia was almost $5 per barrel. It is no secret that Russia has to sell its oil at a good discount because of sanctions. The KSA or UAE will immediately raise the price of their oil. China will have a similar problem.

In addition, even attempts to abandon Russian oil will cause a sharp rise in world prices. And it will be an additional blow to China and India as the world’s largest oil importers. All this will deal a severe blow to the economies of China and India.

The West can build long-term energy strategies against Russia (betting on a split in OPEC+, on production growth in the Persian Gulf, on production growth in the USA itself), but these are long-term strategies that cannot be solved in a few months. So, Trump hardly expects China or even India to actually give up Russian oil. He is trying to fit threats of secondary sanctions into actual “tariff wars” as additional leverage against the Chinese and Indians.

Another important feature of the new sanctions is that they fail to be “seamless.” The USA has not joined the dynamic price cap. While the EU is still trying to ban in its countries diesel from Russian oil produced in third countries, there is no such ban on the part of the USA and the UK. On the other hand, for instance, restrictions against LUKOIL’s trader Litasco are now in London’s sanctions policy, but Brussels has no measures against this company.

That means Russian companies still have a large arsenal of technical means to overcome sanctions. Board-to-board transshipment, blending at neutral ports, resale through a chain of traders. So Russian oil will continue to be purchased.

The new sanctions are becoming more a measure of psychological pressure — and not on Moscow, but on its partners. So, the problem is that this drawn-out sanctions game is already going well beyond relations with Russia. The West itself created the rules for the functioning of global energy markets. And now it itself is destroying them. Imposing sanctions that it doesn’t even know how to administer. Or just threatening with them. The West, having started pressuring the countries of the Global South, is accustomed to seeing itself as a capricious player, ready to change the basic conditions at any moment. Although recently, it itself tried to convince everyone of their reliability and long-term viability. The result is chaos.

But that means there will inevitably be a demand for new rules. No one wants to constantly live in economic turbulence. Regionalization and fragmentation of energy markets will probably intensify as a response. But Russia will still not be excluded from the global hydrocarbon trade. Does the USA want to produce and sell more oil and gas? But what will be the conditions of these deals in the medium term? After all, Trump — and EU leaders alike — are doing everything they can to discredit themselves as reliable trading partners. Which, by the way, is not the case with Russia. As a reminder, Europe itself has refused to consume Russian hydrocarbons. And today it is trying to cover up the non-fulfillment of long-term contracts with Russian companies with political motivation. This move was a big economic mistake. But now Brussels has a desire to extend this practice to Asian countries. However, it is unlikely that they are willing to accept this. They need energy resources supplied on clear terms at reasonable prices. And Russia is ready to provide them.

By Konstatin Simonov, NESF

Pluralia.com, 10/08/2025