When Russia invaded Ukraine in 2022, Western countries responded with aggressive economic restrictions — freezing Russia's official foreign exchange reserves, imposing export controls on critical technologies, and imposing sanctions on dozens of its political, military, and business leaders. More than four years later, however, the war continues, and Western sanctions have done only limited damage to the Russian economy, write Robin Brooks and Ben Harris for Foreign Affairs.
"Russia continues to trade in oil and other commodities, recently receiving huge additional revenues after the closure of the Strait of Hormuz led to a sharp jump in world oil prices. These profits increase the government's tax revenues at a critical time, helping it finance the war in Ukraine and stabilize the country's financial markets. If sanctions seemed ineffective before, Russia's economic recovery since the start of the United States and Israel's war with Iran has only reinforced that impression.
But it would be a mistake to write off sanctions as a tool of policy. When Western politicians portray them as a futile effort or a counterproductive measure, their governments are actually doing Moscow a favor. They also underestimate the enormous strain that sanctions can still exert on the Russian system if properly implemented. By reducing the flow of hard currency into Russia, sanctions have the potential to push the ruble into a downward spiral, which would in turn accelerate inflation and destabilize the country’s broader economy.
It is not too late to turn sanctions into an effective tool. A fifth of Russia’s GDP is directly linked to oil and gas production, and exports account for nearly a third of the government’s revenue. Russia circumvents Western sanctions on oil exports primarily through a so-called “shadow fleet” of oil tankers, and this fleet is vulnerable to European pressure. It transits European-controlled waterways, is staffed with ships owned by European companies, and may be forced to use the Western-dominated insurance sector. All of this gives Europe the opportunity to restrict the operations of this fleet and thus drastically reduce Moscow's ability to finance its destructive war.
The rise of the "shadow fleet"
The sanctions that the United States, the European Union, the United Kingdom and Canada imposed on Russia in early 2022 were extremely broad. They included controls on the export of sensitive goods such as semiconductors, computers and lasers, as well as freezing Russian foreign exchange reserves held in Western central banks. However, efforts to restrict Russian oil exports were limited at the time. The global economy was still recovering from the COVID-19 pandemic, demand for oil was large and growing, and Russian oil accounted for approximately 1/10 of global supply. Western countries did not want to raise prices by imposing an embargo on Russian oil, but the very fear that they might do so still led to a sharp rise in oil prices and brought huge profits to Moscow. Russia’s current account surplus — that is, the amount by which export revenues exceed import payments — reached a record $235 billion in 2022. In just one year, Russia has almost recovered the foreign exchange reserves frozen by Western countries.
Western countries had to find a way to prevent Moscow from generating huge profits from oil exports without causing a sharp jump in world prices. Many oil and commodity analysts feared that any attempt to remove Russian oil from world markets could raise the price of crude from its pre-war level of around $75 a barrel to $200 or more. This would allow Russia to make huge profits from its remaining exports even if export volumes fall. Such a significant appreciation would almost certainly push the global economy into recession.
The decision reached by the G7 in December 2022 was a cap on the price of Russian oil. About 70% of ships carrying Russian oil were owned by Western companies, and nearly 90% used Western insurance, finance and brokerage services. The G7 countries, Australia and the EU agreed to allow Russian exporters to use these services — but only if the crude they sold was priced below $60 a barrel. There were also separate price caps for high-value refined products, such as diesel, and for lower-value products, such as naphtha, which is used in refining and plastics production. The idea was to set the ceilings high enough to allow Russian oil exports to continue, but low enough to limit Russia’s revenues.
Together with a European ban on buying any Russian oil shipped by sea, regardless of price, the ceiling immediately changed the structure of the world oil trade. Suddenly, Russia began selling most of its crude to Asian markets, especially China and India, where buyers were able to negotiate prices significantly below those of Western varieties. By January 2023, Russian crude was selling for almost 40% less than the global benchmark, depriving Russia of billions of dollars in profit every month. The country’s current account surplus began to decline, falling to $50 billion in 2023 and recovering only slightly to $63 billion in 2024.
The West remains powerless despite attempts to impose controls
Over time, however, Russia found ways to circumvent the restrictions. Because their enforcement depended on Western ownership of ships carrying Russian oil, Russia could avoid the restrictions by transferring crude oil exports to ships flying third-country flags but controlled through a maze of shell and holding companies from Moscow. By 2023, the “shadow fleet” was growing by about seven oil tankers a month. About half of the ships were purchased by Western owners, most of whom were based in Greece. The EU tried to block such deals in a December 2023 sanctions package, but sales continued, although now channeled through shell companies before the ships reached Russia.
Ultimately, Western countries stepped up the pressure on the "shadow fleet", imposing sanctions on a large number of ships known to be carrying Russian oil subject to the price cap. The United States led the campaign, adding almost 200 ships to its sanctions list in the final days of the Biden administration, and the EU and Britain followed suit shortly thereafter. When a tanker is placed on the US sanctions list, any company or entity trading in it risks being cut off from the US dollar payments system. The loss of access to this system would be so severe that the mere threat of secondary sanctions is enough to deter most companies from doing business with sanctioned entities.
However, this success proved short-lived. The United States stopped sanctioning new ships under President Donald Trump even as the EU and UK sanctions lists grew to over 600 vessels. Without the threat of US secondary sanctions, the 524 ships currently sanctioned by the EU and UK, but not by the US, continued to transport Russian oil unhindered. To date, the "shadow fleet" accounts for about two-thirds of the tanker traffic leaving Russia's Baltic ports, which account for about half of Russia's seaborne oil exports.
In October 2025, the Trump administration imposed sanctions on the two largest Russian oil producers — "Lukoil" and "Rosneft" — which drove down the price of Russian oil. A few months later, however, it reversed some of that progress by granting numerous exemptions to buyers of Russian oil as world prices rose amid the war with Iran. With these exemptions and with much of the "shadow fleet" in operation, Russia was soon able to export oil on its own terms and profit from rising prices. By April, the discount of Russian oil to world prices had all but disappeared. Moscow's tax revenues from oil for the period April-July were $14 billion higher than a year earlier.
Tightening the noose
To put real pressure on Russia’s oil revenues, Western countries must dismantle the "shadow fleet". But Washington has been slow to impose sanctions on additional ships in the fleet, and a new bill, the so-called Lindsey Graham Russia Sanctions Act — approved by a large majority in the Senate in August and currently under consideration in the House of Representatives — is unlikely to change the situation significantly. The bill would give the executive branch new powers to impose tariffs on importers of Russian oil, but there is little reason to believe that this will have much effect; the Trump administration’s 25 percent tariff on India has not stopped the country from importing Russian oil. While the bill would pave the way for direct sanctions on ships in the "shadow fleet" on the US side, the Trump administration has so far refused to take such measures and may continue to do so.
This leaves the task of curbing Europe's "shadow fleet". Previous EU and UK sanctions alone have not significantly restricted Russian exports, but the only reason for this is that Europe has left serious gaps in its sanctions enforcement regime.
So far, Europe has been reluctant to expand its sanctions against Russia.
Now is the time to fill these gaps, starting with the continued provision of Greek and other oil tankers to Russia. The ships in the "shadow fleet" are on average about five years older than standard oil tankers, as their owners want to limit their losses in the event that the ships are sanctioned. As these vessels approach the end of their service lives, maintaining the fleet requires frequent replacement. Until now, the largest source of new ships has been Greek shipowners. The EU banned the sale of such tankers to Russian nationals and entities in a sanctions package introduced in December 2023, but European ships still end up in the hands of Russian buyers. Brussels must now extend the ban to cover any deal made through holding companies that ultimately results in a ship being transferred to the "shadow fleet". The new rules should oblige European shipowners to sell only to reliable buyers approved jointly by the EU and the UK, and to provide information on the tracking of the ships after their sale. Of course, Russia could buy tankers from many other vendors, but finding alternatives for such a large number of vessels would be more expensive and time-consuming.
Europe has considerable economic power and a strong legal system, and it can use both to impose consequences on third countries that support the activities of the "shadow fleet". To disguise their connection to Russia, the ships of the "shadow fleet" usually fly the flags of other countries - ones that do not require the tankers to have insurance. However, international maritime treaties allow countries to require ships sailing in their territorial waters to comply with certain requirements, including having insurance coverage from a reliable insurer. The EU and the UK should put pressure on flag states to enforce these rules. For example, they could threaten to cut off aid to countries that do not check the insurance coverage of their registered ships, or make it clear that those countries could face legal action in the event of an oil spill or other incident. If flag states start enforcing insurance requirements, many of Russia’s aging tankers will become unusable because they are not seaworthy enough to be insured by reputable companies. And because Western companies dominate the marine insurance market, most eligible ships will have to buy their policies from Western firms, making it easier to enforce the G7 oil price cap.
European countries also have legal grounds to detain old, poorly maintained ships that pose an imminent threat to the environment. Such a measure is not as escalating as it might seem. Over the past two years, countries such as Estonia, Finland, France, Germany and the UK have stopped, inspected and sometimes detained ships from the "shadow fleet", but these actions have so far not provoked an overt response from Russia.
There is no better time than now
Cutting off Russia’s access to ships and forcing vessels to comply with Western insurers’ regulatory requirements would go a long way towards limiting the ability of the "shadow fleet" to circumvent price caps. Once these enforcement mechanisms are in place, Europe could go further by limiting Russia’s oil profits by lowering price caps for refined products. Currently, the caps for high- and low-value refined products are set at fixed dollar amounts that are well below market prices, but the EU and the UK should have a plan for adjusting them once the Strait of Hormuz opens and oil prices normalize. The preferred model should be a crude oil price cap set in 2025, set at 15% below the average market price for the previous six months. Such an automatic adjustment would allow Europe to provide clear and consistent guidance to bona fide oil traders and to respond to frequent fluctuations in energy prices without requiring each EU country to approve every change in fixed price caps.
European policymakers have little to lose by implementing these measures. They are not intended as a direct confrontation with Russia, but instead focus Europe’s coercive power on flag states and shipowners within the EU. If implemented properly, the measures should not lead to an increase in global energy prices, as they would maintain the volume of Russian exports. Moscow’s revenues from these exports, however, would be limited, as most of Russia’s oil trade would be shifted from the "shadow fleet" to legitimate tankers subject to European price caps. Europe has so far been reluctant to expand its sanctions against Russia for fear that such moves could lead to escalation. But policymakers’ willingness to take bolder measures is growing amid U.S. inaction, Russia’s increasingly effective evasion of sanctions, and growing concerns that the war could spill over beyond Ukraine.
In the meantime, inaction means an easy victory for Moscow. Russia will continue to replace aging tankers with newer ones and reap huge profits from the seaborne oil trade, which will flow directly into its war machine in Ukraine. Europe has policy tools it can use to stop the "shadow fleet", and this is an opportunity it cannot afford to miss.