Tag: Price Cap Policy

In this policy brief we discuss the effects that would arise if the EU imposed a full transport ban on Russian oil. The transport ban would imply that any oil tanker transporting Russian oil would be prohibited from any oil trade involving the EU and from entering EU ports. We argue that such a transport ban would achieve the intended objectives of the EU’s oil sanctions: to reduce Russia’s oil income without risking surging oil prices.

Background

In its ambition to protect Ukraine and itself from Russia, the EU has two toolboxes at its disposal: military defense and economic warfare. The purpose of economic warfare is to “reduce the economic strength, hence the war potential, of the enemy relative to [one’s] own“ (Wu, 1952, p.1). It essentially boils down to the dual goal of harming your opponent without harming yourself too much (Snidal, 1991; Spiro, 2023).

Following the full-scale invasion in 2022, the EU and other countries significantly ramped up the oil sanctions against Russia as part of this economic warfare. Among them, the import embargo on Russian oil has been the most consequential; the G7 price cap on Russian oil, while being more politically salient, quickly lost much of its initial efficacy (Kilian et al., 2024; Spiro et al., 2025). Sanctions are like a cat-and-mouse game where Russia has now managed to circumvent the price cap to a high degree. The question for the EU, therefore, is how to revise the price cap sanction or what to replace it with. This policy brief analyzes one option: a full transport ban on Russian oil. To understand why and how such a sanction would work, it is, however, important to understand why the price cap does not.

The Price Cap: In Theory and Practice

Theoretically, the price cap sets a maximum price for Russian oil exports. Initially, the G7 cap was set at $60/bbl, while the EU later lowered it to $47.60/bbl. The practical implementation of the price cap was through the tanker and insurance markets. Any tanker transporting Russian oil at a price above the cap would not be able to get access to Western insurance or services. Since a very large part of the tanker fleet was, at the time of implementation, insured in the UK, this was consequential. Eventually, an additional constraint was added: tankers not following the price cap would not be allowed to access European ports.

The rationale for the price cap, at the time of its implementation, was that the G7 wanted to achieve the dual goal of economic warfare: it wanted to harm Russia by limiting its oil income while minimizing the harm to the global economy by ensuring Russia would not reduce oil exports. It was believed that a price cap set at 60 $/bbl would achieve that dual goal. With a world oil price at $80-100/bbl, the cap would severely reduce Russia’s oil profits; but since Russia’s cost of production is $5-15/bbl, it would have economic incentives to continue exporting oil (Gars et al., 2025; Johnson et al., 2023; Wachtmeister et al., 2022).

The price cap initially worked as intended: combined with the EU import embargo, it drove significant discounts on Russian oil while export volumes remained steady (Babina et al., 2023; Spiro et al., 2025; Turner & Sappington, 2024). Over time, however, the price cap’s efficacy eroded (Cardoso et al., 2024; Kilian et al., 2024; Spiro et al., 2025). This was for two main reasons: 1) the expansion of the “shadow fleet” of tankers willing to transport Russian oil without Western insurance or services; 2) fraudulent paperwork, allowing some tankers to appear compliant while actually transporting Russian oil at a price above the cap (Hilgenstock et al., 2023).

By early January 2025, only 15% of crude-oil tankers departing Russia used Western insurance (CREA, 2025), with the remainder being part of the shadow fleet. After the implementation of large-scale vessel sanctions later that month by the US Treasury’s Office of Foreign Assets Control (OFAC), the share of tankers using Western insurance increased. This indicates the shadow fleet can be affected by countermeasures. Yet, despite the strengthened sanctions, by October 2025, around 65% of shipments still used the shadow fleet, even as a large portion of that fleet now consisted of sanctioned vessels. A large part of the remaining 35%, while officially compliant, likely circumvented the price cap by use of fraudulent paperwork.

Extensive additional monitoring and enforcement capacity would be required to eliminate such fraud. To restore the full intended function of the price cap, or make a lowering of the cap meaningful, the shadow fleet would also need to be substantially reduced. But given recent estimates putting the shadow fleet at around 18% of global tanker tonnage (The Maritime Executive, 2025) this seems hard to achieve.

Given the challenges involved in re-establishing this system, an alternative approach is to replace the price cap altogether. So, what could serve as an effective replacement?

A Full Transport Ban

We here consider a transport ban on Russian oil.  In practice, under such a transport ban, a European coalition of countries would ban any tanker carrying Russian crude oil or refined products from entering European ports and using European services, either permanently or at least for as long as the ban is in place. Consequently, such tankers would be banned from any European oil trade, including, for instance, oil sold by OPEC countries to the EU, as well as any European maritime services in the future. This restriction would apply regardless of the sale price or whether the shipment formally complied with the G7 price cap.

Notably, in 2022, one of the sanctions planned by the EU and discussed within the G7 was a “service ban” that would be akin to the transport ban proposed here. The EU and G7 eventually decided not to implement it and to introduce the price cap instead, due to fears that such a sanction would come at a great cost to the world economy. Since Russia at the time only had access to a small tanker fleet of its own, a service ban would have resulted in an export reduction and an oil-price spike (Gars et al., 2025). This fear may have been well-founded there and then. However, as argued below, it is not a major concern today.

How a Transport Ban Would Work Today

The economic harm to Russia from a transport ban would come through the tightening of the tanker market that Russia can access. A tanker owner would essentially need to decide whether they want to transport Russian oil (around 10% of all seaborne oil trade) or have access to trade involving the EU countries (around 23% of seaborne oil trade). This, in essence, constitutes a trade-off between the short-run gains from transporting Russian oil and the longer-term consequences of the tanker being permanently sanctioned. Since the transport ban would be aimed at the tanker, it would also reduce the tanker’s value if sold. Plausibly, tanker owners would then only agree to transport Russian oil if they receive a sufficiently large premium compared to the income from transporting other oil. This would translate into higher transport costs for Russia, squeezing its profit margins (Spiro et al., 2025). How much Russian transport costs would increase is hard to say, but it should be noted that even an increase of $5 per barrel in these costs for crude implies Russian losses equal to 0.5% of GDP (Spiro et al., 2025).

Since Russian profit margins are very large, they would likely be willing to pay that premium. Furthermore, given that export reductions would inflict losses on Russia itself and on its key partners (China and India, see Gars et al., 2025), it is unlikely that Russia would reduce its exports as a sort of retaliation. The risk of a Russian supply disruption and an oil-price spike is thus low under a transport ban.  In other words, a transport ban would inflict costs on Russia without risking major costs to the EU.

Other Advantages

Importantly, under the described transport ban, paper fraud would become a non-issue. The sanctioning coalition would only need to monitor whether a tanker has entered a Russian port. Any such vessel would be placed on the banned list, regardless of whether it belongs to the shadow fleet, is Western-owned, or claims compliance with the price-cap regime. Given that a large share of Russian oil exports goes through European waters and chokepoints (e.g., the Danish Straits), it should be possible for the EU to identify such tankers, in particular those transporting Russian oil through the Baltic Sea (46% of all seaborne Russian crude and products).

Furthermore, this EU-led transport ban would not depend on coordination with the United States. The effectiveness of this sanction stems from geography, where a large share of Russian oil transits EU-controlled waters, and from the EU’s position as a large oil importer (13.7 mb/d). That said, if more countries joined the sanctioning coalition, the cost of ending up on the sanctioned list would be higher. Similarly, the premium required by the tanker owners would be higher. Hence, the sanction would be more effective if other major importers, such as Japan and South Korea, or major exporters, such as Canada and Norway, joined the coalition. US participation would, of course, also add weight, but would not be essential for the core mechanism to work.

Potential Problems and Interactions with Other Sanctions

One problem that a transport ban would likely not solve and could even exacerbate is the environmental risks posed by the poor condition and risky operations of the shadow fleet. The cost of being on the sanctioned list would be the loss of future earning potential of the tanker. Tankers closer to being scrapped would more likely choose the short-run premium over the future earning potential. The fleet transporting Russian oil could therefore end up consisting of even older, less safe tankers than today. Furthermore, the value of servicing the tankers would likely decrease, possibly reducing the quality and safety of the tankers further. While it is hard to ascertain the strength of these effects, by our judgment, it is likely small compared to the current situation and condition of the shadow fleet. The transport ban would not increase the amount of Russian oil shipped through European waters. The transport ban would, furthermore, provide another reason to monitor the movements and doings of tankers in European waters (on top of the current monitoring due to environmental risks and sabotage).

The EU today has a list of shadow tankers that are banned from European trade and services (EU Council, 2025). That is a good start, but the list is only partial. It has most likely missed a large share of vessels serving Russia using fraudulent paperwork. The proposed tanker ban would make the list longer and easier to administer. Prohibiting specific tankers from entering European ports and being involved in the European oil trade should be within the EU’s capacity. If secondary sanctions could be imposed consistently, that would give even larger effects, since the costs of breaking the sanction would increase further. That is where coordination with the US would be particularly impactful, as OFAC has a much better capacity for such measures. This said, given the current geopolitical situation, there are strong reasons for the EU to build up its own capacity for secondary sanctions.

While the proposed transport ban would simplify the monitoring compared to the price cap, there could still be potential for evasion. Monitoring whether a tanker has been in a western Russian port should be feasible, but following its movements all the way to the destination may not be. Potentially, Russia could then partly evade the sanctions using ship-to-ship transfers. Here, one tanker could transport the oil from Russia out of European waters, then transfer the oil to another tanker, which would transport the oil to the final destination. If the transfer is not detected, that second tanker could transport the Russian oil part of the way without facing sanctions. We cannot rule out that some such evasion could happen. But due to the risk of detection, the second tanker would also likely demand a higher premium, and Russian transport costs would still increase, albeit by somewhat less. Importantly, the EU should be able to detect and block these ship-to-ship transfers when they occur in European waters.

The US recently implemented sanctions on the two Russian oil companies Rosneft and Lukoil, by which anyone who does business with them is subject to secondary sanctions. In a sense, these US sanctions are similar to a transport ban, as they make it more difficult for Russia to export oil. In another sense, they are more of a complement to it. The US sanctions are targeted at specific firms, opening up for evasion by changing corporate structures and selling off assets, while the transport ban would be targeted at the physical tanker. It cannot be taken for granted that the US will uphold or keep its current sanctions, not least because they are intertwined with other motives (such as a trade war). It is, furthermore, not obvious that OFAC will have the capacity (or be allowed) to sanction entities within China and India. So, while the US sanction has touch points with the transport ban discussed here, the EU may need to construct its sanctioning regime independently.

In Summary

A transport ban implemented by the EU would serve the purpose of its economic warfare and has the potential to fill a gap in the current sanctions regime that has been opened by the eroding efficiency of the price cap. A transport ban would increase Russia’s oil-transport costs with low risks of oil-supply disruptions and price spikes. The requirements of monitoring for upholding a transport ban are much lower than for the price cap. The transport ban is not entirely immune to evasion, but the problems are likely small and would only partially reduce the effect of the sanction. The main concern is the environmental risks, but the sanction is unlikely to meaningfully increase the risks already posed by the current shadow fleet built up in response to the price cap. It is also feasible to implement a transport ban by the EU on its own, although the effect will increase if the sanctioning coalition is enlarged.

References

• Babina, T., Hilgenstock, B., Itskhoki, O., Mironov, M., & Ribakova, E. (2023). Assessing the Impact of International Sanctions on Russian Oil Exports (SSRN Scholarly Paper No. 4366337).
• Cardoso, D., Daubanes, J., & Salant, S. W. (2024). The dynamics of evasion: The price cap on Russian crude exports and amassing of the shadow fleet, mimeo
• CREA. (2025). Tracking the impacts of G7 & EU’s sanctions on Russian oil. Centre for Research on Energy and Clean Air.
• EU Council. (2025). Council Regulation (EU) 2025/2033 of 23 October 2025 amending Regulation (EU) No 833/2014 concerning restrictive measures in view of Russia’s actions destabilising the situation in Ukraine.
• Gars, J., Spiro, D., & Wachtmeister, H. (2025). Winners and losers of a Russian oil-export restriction. Public Choice.
• Hilgenstock, B., Ribakova, E., Shapoval, N., Babina, T., Itskhoki, O., & Mironov, M. (2023). Russian Oil Exports Under International Sanctions. SSRN Electronic Journal.
• Johnson, S., Rachel, L., & Wolfram, C. (2023). Design and implementation of the price cap on Russian oil exports. Journal of Comparative Economics, 51(4), 1244–1252.
• Kilian, L., Rapson, D., & Schipper, B. C. (2024). The Impact of the 2022 Oil Embargo and Price Cap on Russian Oil Prices (SSRN Scholarly Paper No. 4781029).
• Snidal, D. (1991). Relative Gains and the Pattern of International Cooperation. American Political Science Review, 85(3), 701–726.
• Spiro, D. (2023). Economic Warfare (SSRN Scholarly Paper No. 4445359).
• Spiro, D., Wachtmeister, H., & Gars, J. (2025). Assessing the impacts of oil sanctions on Russia. Energy Policy, 206, 114739.
• The Maritime Executive. (2025). Sanctions Have Not Slowed the Growth of the Shadow Fleet. The Maritime Executive.
• Turner, D. C., & Sappington, D. E. M. (2024). On the design of price caps as sanctions. International Journal of Industrial Organization, 97, 103099.
• Wachtmeister, H., Gars, J., & Spiro, D. (2022). Quantity restrictions and price discounts on Russian oil (No. arXiv:2212.00674). arXiv.
• Wu, Y. (1952). Economic Warfare. Prentice-Hall.

Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.