EU, UK confirm sanctions on shadow tankers, to review G7 price cap

The EU and UK on May 20 confirmed fresh rounds of sanctions on Russia to undermine its war chest against Ukraine, putting over 200 ships on their blacklists and suggesting the G7 price cap could be lowered in the future.

During a meeting between EU member states' foreign ministers, the Council of the EU formally adopted its 17th sanctions package against Russia. The package mainly targets the shadow fleet shipping Russian oil in circumvention of the price cap regime and associated companies.

"Russia's actions and those who enable Russia face severe consequences," said Kaja Kallas, High Representative for Foreign Affairs and Security Policy and chair of the Foreign Affairs Council of the EU. "The longer Russia persists with its illegal and brutal war, the tougher our response will be."

EU member states confirmed 189 tankers were added to their sanction list in the EU's largest enforcement action of its kind to date, bringing the total number of blacklisted ships to 342.

Russian tanker firm Volga Shipping, insurer VSK, and some shadow tanker operators in the UAE, Turkey, and Hong Kong were also sanctioned.

Separately, Surgutneftegas, the Russian oil company sanctioned by the US in January during the Biden administration's winding days, was also added to the EU blacklist this time.

The UK also sanctioned 18 tankers transporting Russian oil illicitly on the same day, having just blacklisted 110 ships earlier this month.

Since December 2022, the G7 and its allies have banned tanker operators, marine insurers, and other shipping service providers from participating in Russian oil exports unless crude is sold for $60 per barrel or less. Premium products are capped at $100 per barrel, and discounted products at $45 per barrel, effective February 2023.

"The UK is also working with partners to tighten the oil price cap," the UK Foreign Office said. "We are reviewing the $60 crude price level, with a view to lowering the cap closer to the cost of production."

Trade dynamics

The ships sanctioned by the UK and EU in the latest enforcement have lifted 1.29 million b/d of crude and oil products from Russian ports so far this year, according to S&P Global Commodities at Sea.

But the large-scale sanctions are not expected to directly hit Moscow's oil sales for now, with Russia's flagship crude, Urals, trading below the $60/b threshold in recent months.

Russia has been able to turn to tankers serviced by Western companies within the current price cap, with 1.27 million b/d of Russian crude lifted by G7-linked tankers for exports last month, based on CAS and S&P Global Maritime Intelligence Risk Suite data, a 13-month high.

The monthly average price for free-on-board Primorsk Urals was $52.858/b last month, down from $57.421/b in March and the weakest monthly reading since June 2023, according to Platts, part of S&P Global Commodity Insights. Urals was assessed at $52.89/b on May 19.

The weakness was in line with bearish international crude futures. The discount of Urals to Date Brent has been at $13/b since late April, according to Platts.

Several media reports suggested the EU could propose a $50/b price cap for Russian crude during a G7 meeting in Canada on May 20-23. The average breakeven level for Russian crude production is $56.95/b when a 20% rate of return is taken into account, according to S&P Global Annual Strategic Workbook.

The UK and EU sanctions came after US President Donald Trump said peace talks between Russia and Ukraine "will begin immediately" without details after a two-hour phone call with Russian President Vladimir Putin on May 19.

Many industry participants have suggested that any sanctions tightening on Russia needs to have US backing to be effective.

Russian oil revenues have decreased by Eur38 billion ($43 billion) due to the price cap regime based on EU estimates. Also, crude oil deliveries via sanctioned ships have dropped by 76% due to Brussels' enforcement, according to the EU.

But the EU in its latest sanctions package extended an exemption from the oil price cap for the Sakhalin-2 project for one year until June 28, 2026, which the bloc said is to ensure the energy security of Japan, a G7 country.