EU proposes import ban for oil products made from Russian crude, $45/b price cap

The European Union proposed banning refined oil products made from Russian crude and dropping the G7's price cap to $45/b on June 10, promising a major shakeup in its sanctions policy for the first time since 2022.

Speaking in a live broadcast on June 10, European Commission President Ursula von der Leyen proposed the bloc's first clampdown on refined product imports made from Russian crude that is processed abroad and delivered back into the EU.

"We introduce a ban on the import of refined products based on Russian crude oil. In this way, we want to prevent that some of the Russian crude oil reaches the EU market through the back door," von der Leyen said.

The EU will also recommend dropping the G7 price cap threshold for Russian crude from $60/b to $45/b at an upcoming summit in Canada this weekend, she said, arguing that a weaker price environment had made a new threshold necessary.

"By lowering the cap, we adapt to changed market conditions and restore its effectiveness," the commission President said in a live broadcast on June 10.

As a G7 policy, a lower price cap remains subject to agreement from non-EU members of the organization, including the UK, Japan and the US.

US President Donald Trump is reported to have resisted a $50/b price cap recently floated by the EU and UK, but has previously threatened secondary sanctions for Russian oil buyers amid ongoing efforts to broker a peace deal with Ukraine.

Tough talk

Both measures would mark a significant step up in EU sanctions policy, which has so far focused on curbing Russian oil revenues without affecting world oil supply.

After the EU banned Russian crude and oil product imports in 2022 and 2023, India, China and Turkey emerged as new consumers, capitalizing on cheap feedstock prices for the Urals grade once processed in Europe.

However, the price cap mechanism left the door open for EU member states to continue importing fuel regardless of its feedstock origin, allowing India and Turkey to emerge as substitute suppliers for lost Russian diesel flows.

According to S&P Global Commodities at Sea data, Europe’s refined product imports from India jumped from under 40,000 b/d in 2021 to 160,000 b/d in 2024, down from a peak of almost 200,000 b/d the previous year.

By imposing a $60/b crude oil price cap on Russia, G7 member countries aimed to control Russian revenues from the newly-established trade routes, but enforcement challenges have undermined its efficacy.

Responding to the announcement, Rachel Ziemba, a senior adviser at Horizon Engage, said that the proposal had come as a surprise to markets, but expressed lasting doubts over enforcement.

"I don't think markets expect price cap lowering to happen, or if they do expect it, they assume a lack of shadow fleet enforcement will limit impact," she said.

Price slump

In crude markets, a major oil market selloff in April had triggered growing calls for a price cap adjustment as legitimate rates have languished below the $60/b threshold.

Platts, part of S&P Global Commodity Insights, assessed Russia's Urals crude on a FOB Primorsk basis at $56/b on June 9, its highest level since April 3 but below a 2024 average of $66/b.

As a result, prevailing market rates left Russian exporters at liberty to legally ship their crude, appearing to lure new buyers into the market.

India and China consistently remained Russia's largest crude consumers. However, in May, Japan imported its first Russian cargo since 2022, while Turkey's Tupras appeared to drop a commitment to find new supplies.

"It is understandable why the EU wants to lower the cap, as with Brent in the mid-$60/s, the $60/b existing price cap has been rendered moot," said Ronald Smith, partner at Emerging Markets Oil & Gas Consulting Partners.

Prices have not fallen below the new $45/b proposal since March 2023, according to Platts assessments.

Tanker crackdown

In conjunction with its lower price cap proposal, the EU targeted another clampdown on the network of 'shadow tankers' caught selling oil above the existing limit.

Under its proposal, the bloc suggested blacklisting 77 tankers linked to the secretive shipping network, taking its potential sanctions list to 419.

However, analysts warn that policymakers could be hard-pressed to keep pace with the size of the shadow fleet, which has continued to balloon worldwide.

According to a joint study by S&P Global Commodity Insights and Market Intelligence last month, the number of crude and product tankers used to transport sanctioned oil globally reached 940 in May, representing around a 60% annual increase.

According to S&P Global Commodities at Sea data, Russian crude shipments hit seven-month highs in May, mostly on non-G7 tankers.