Price Cap on Russian Oil: Geopolitical Tool or Fiction?

In December 2022, the G7 countries, the EU, and Australia introduced a mechanism to limit the price of Russian oil, known as a “price cap.” This decision was the first time in history that the world's leading economies collectively set a maximum price for energy resources in order to financially restrict an aggressor state.

The concept was based on an attempt to force the Russian Federation to sell oil at a price not exceeding $60 per barrel, which, according to Western experts' calculations, would allow it to recoup production costs but significantly reduce the profits that could be used to fund the war against Ukraine.

A price cap is not an embargo. It does not prohibit the purchase of Russian oil, but requires compliance with certain conditions for insurance, transportation, and financial transactions. Insurance companies, banks, brokers, and tanker owners based in G7 countries are only allowed to service shipments that are priced below a certain level. Thus, the restriction was based not on physical blocking, but on control over key infrastructure services.

The G7 became the core of this mechanism. It is the members of the “Group of Seven” that control more than 90% of the global marine insurance market, as well as most of the leading financial institutions through which oil payments pass. From a technical standpoint, the mechanism looked elegant: Russia could trade oil, but only within certain limits, and countries that agreed to higher prices would face the risk of sanctions or denial of insurance coverage.

During the first months of the sanctions, the mechanism proved to be relatively effective. According to the International Energy Agency (IEA), in the first half of 2023, prices for Russian Urals oil did indeed remain below the ceiling, within the range of $50–55. This was partly due to oversupply and caution on the part of buyers, especially in India and China. At the same time, the Kremlin continued to supply raw materials in order to maintain foreign exchange earnings, even at a price almost half that of the global Brent price.

The Shadow Fleet — the Main Tool for Circumventing Sanctions

However, by the fall of 2023, it became clear that Russia was adapting. Moscow launched a large-scale logistics operation known as the “shadow fleet” — an informal network of old tankers resold through front companies, mainly in the UAE, Singapore, and the Caribbean. Insurance was arranged through dubious structures, and documents were forged.

In addition, some of the oil was mixed in ports with raw materials from other countries, forming “blends” that made it difficult to identify its origin. According to estimates by analysts at Bloomberg and the Centre for Research on Energy and Clean Air, by the end of 2024, more than 60% of Russian exports were circumventing the price cap.

The main flaw in the mechanism is its weak oversight. To be effective, the system requires large-scale monitoring: checking bank transactions, tracking ship movements, auditing customs documents, and verifying insurance policies.

However, even in EU countries, no centralized body has been created to carry out this control. The US has compensated for this vacuum to some extent with secondary sanctions, particularly against Turkish and Indian companies. However, the overall picture shows that without constant pressure and investigations, the mechanism quickly loses its effectiveness.

Circumventing the price cap is not just an economic problem. It sends a signal to other autocracies that the West is not always prepared to follow through on its intentions. This is where the broader geopolitical significance of the initiative lies. The price cap is an attempt to create a new norm whereby aggression against a sovereign state entails not only diplomatic notes or embargoes, but also a targeted transformation of the market aimed at reducing the aggressor's revenues. This is a war not with weapons, but with the rules of the game.

This approach is a kind of economic NATO. However, to be successful, it cannot remain fragmented. It is necessary to strengthen the control system, synchronize databases between G7 countries, and create a specialized auditing body to verify routes, cargoes, and payment recipients. It is also necessary to expand the list of countries that agree to adhere to the ceiling and offer them compensation instruments — for example, insurance guarantees or joint funds in case of energy instability.

The Evolution of the Price Ceiling is Entirely Possible

The price cap must also evolve. In this context, one of the most important steps was the discussion of a dynamic price cap formula. Pegging to the market value of Brent with a constant discount of, say, 30 percent seems more adaptive and resistant to manipulation.

This approach complicates hidden trading schemes and allows for automatic responses to changing market trends. For example, if the price of Brent falls to $70, the maximum permissible price for Urals should be $49. If Brent rises to $90, the limit for Russian oil could be $63. This eliminates the main weakness of the mechanism — its rigidity.

However, the link to Brent itself requires political consensus and technical implementation. First, the formula must be agreed upon. Will the discount be fixed? Will it depend on the type of product? How often will the calculation basis be updated?

Second, it is necessary to create a single mechanism for informing all operators — insurers, brokers, shipowners — about the current limit in order to avoid confusion or deliberate abuse. This requires a digital platform and an updatable database integrated into oil trade logistics.

What to Do with Petroleum Products?

Another important topic is petroleum products. Currently, most measures are aimed at crude oil, although it is refined products such as diesel, fuel oil, and kerosene that bring Russia a significant part of its income. According to Energy Intelligence estimates, petroleum products accounted for more than 40% of Russia's oil exports in monetary terms in 2024. At the same time, they are not subject to ceiling restrictions, as their origin is more difficult to determine, especially after blending in third countries.

The inclusion of petroleum products in the mechanism requires deeper cooperation with customs authorities, the use of a supply chain tracking system, and more active involvement of trading companies.

In addition, it is important to create a system of digital certificates of origin, similar to the certification of “green” energy resources in the EU. This will allow the identification of products whose origin is confirmed and increase market transparency.

Propaganda as an Element of Russia's Energy Strategy

At the same time, it is necessary to wage an information war. In 2023–2024, the Russian propaganda machine actively promoted the narrative of the “ineffectiveness of sanctions,” appealing to the growth of foreign exchange earnings and the formal stability of the Russian Federation's budget. These messages were often based on manipulation: statistics included resales, exchange rates did not take inflation into account, and budget revenues were accompanied by total sequestration and mobilization of reserves.

However, these messages found fertile ground in Western discourse. Some political elites in EU countries, particularly in Hungary, Slovakia, and Italy, began to question the effectiveness of the sanctions policy. This weakens the unity of the coalition and complicates the introduction of new restrictions. That is why the media component should become a separate front: it is worth investing in analytics, visualisation of Russia's losses, research on the reduction in the pace of arms supplies, the impact on the defence budget, the cessation of import substitution, etc.

The results of the price cap should not be interpreted solely through the prism of macroeconomics. For example, the introduction of this mechanism coincided with a decline in the share of Russian oil in the European market from 29% in 2021 to less than 5% in 2024. This, in turn, led to a massive shift by Germany, Poland, and the Baltic states to alternative sources — the US, Norway, and Saudi Arabia. This is a structural transformation, not a temporary change. And it deserves to be part of the public rhetoric of Western governments.

Another aspect is the need to review the institutional architecture itself. Currently, the implementation of the price cap is based on voluntary compliance by traders and insurers. Control is decentralized, and sanctions are often applied on a case-by-case basis.

To increase effectiveness, a specialized monitoring body is needed, possibly under the auspices of the OECD or the European Commission, with the authority to make recommendations, collect data, verify transactions, and coordinate actions between states.

Another direction of evolution is synergy with other instruments. For example, price caps should be combined with tougher measures against the “shadow fleet.” The US has already begun arresting ships that violate sanctions, but this is not enough.

A system of “blacklists” for ports should be introduced, and a mechanism for international identification of ships that change flags and owners to circumvent restrictions should be created. Here, it is worth mentioning the possibility of introducing mandatory GPS monitoring for tankers operating in risk areas.

What should a Comprehensive Approach for Maximum Effectiveness Look Like?

In the long term, it is also important to link the price cap to the global discussion on the energy transition. Restricting oil revenues for aggressive states should be part of a broader strategy: reducing dependence on fossil fuels, supporting the transition to renewable energy in the Global South, and reducing the monopolization of the OPEC+ market. In this sense, the price cap has a chance to transform from a temporary sanction into an element of a new economic paradigm.

In summary, the price cap on oil is not a rigid instrument, but a flexible mechanism capable of transforming itself in line with new realities. Its future depends on the West's ability to be technologically mobile, politically united, and communicatively aggressive. This is a test not only of the effectiveness of sanctions, but also of the democratic world's ability to create hybrid defense tools that not only deter the aggressor, but also change the global rules of the game.

Bohdan Popov, head of digital at the United Ukraine Think Tank, communications specialist, and public figure