Sealing the oil-price cap, as outlined above, and then lowering it needs to become the primary focus of efforts to increase the pressure on Russia. Four principal measures in particular would address Russia’s attempts to circumvent the cap:
- Coalition countries must put more resources into enforcing the restrictions they have already imposed on insurance and freight firms based in their jurisdictions, and into improving scrutiny of compliance with the cap. Non-compliance should be regarded as a violation of sanctions.
- Ships sailing with less-than-reputable insurance should be legally prohibited worldwide. If this is not achievable, at minimum such ships should be banned by coalition countries on environmental grounds. This could be done by rating insurance companies based on objective criteria and by strengthening regulatory oversight secured by the industry’s self-governance, in a similar way to mandatory car insurance.
Coalition countries can capitalize on their prominence in the fields of maritime regulation and insurance to impose these standards more widely. Denmark, Germany and Sweden have already begun inspecting tankers sailing through their waters for valid insurance certificates. So far, however, they only ‘delist’ tankers that fail to present valid insurance. This approach is insufficient, as most sanctioned vessels continue operating – albeit with some restrictions. The next step should be to ban tankers without valid insurance from sailing in those countries’ waters altogether and to enforce those banning orders by stepping up physical interventions if necessary, effectively closing the crucial Baltic Sea straits to the ‘shadow fleet’. Inadequate or fraudulent ‘paper’ insurance is a wider industry problem that needs to be fixed, regardless of the status of sanctions on Russia. The need to end Russia’s war on Ukraine is a compelling reason to do so.
- In order to make transfer pricing irrelevant, coalition countries should set the oil-price cap at the CIF price rather than at the FOB price. Alternatively, they should set limits on the freight and insurance costs for different types of transportation. The first option would require differentiation of price caps set by the sanctioning coalition between buyers, as factors such as shipping distance and port fees impact the actual cost of shipping. As a result, the latter may become higher than the cost envisaged by a single cap on CIF price and some sales could then become uneconomically low-priced, resulting in diminished supply and an increase in global oil prices.
- Coalition countries should create a ‘white list’ of buyers that are neither ‘fake’ nor affiliated with Russian private or state-owned capital. Coalition countries should modify the price-cap rules so that proper insurance could be issued only for shipments sold to white-listed buyers. Coalition countries should also oblige such companies to pay half the difference between the price cap and the Brent crude benchmark price into a fund supporting Ukraine. This could make transfer pricing and misreporting of prices much more difficult, while providing an additional source of aid to Ukraine. It would also further screen out any Russian-affiliated buyers because supporting Ukraine is regarded as a criminal offence in Russia.
Implementing these ideas would not be without difficulties and risks. Enforcing a ban on ‘shadow fleet’ tankers passing through the Baltic straits, in particular, would risk provoking an escalation by Russia. But the seizures of Russian ‘shadow fleet’ tankers by Finland in December 2024 and Germany in March 2025 offer a precedent, and suggest effective interdiction capabilities are slowly being achieved. A ‘white list’ of reputable buyers would require thorough due diligence of companies’ origins and ultimate beneficiaries, although this is also possible given sufficient political will. The oil-price cap introduced in 2022 is a new kind of sanction, and fresh ideas for improving its enforcement should be debated and implemented.
The next step, once these measures are implemented and the cap is working properly, should be to instigate an automatic reduction of the capped price in steady increments (by $10 per barrel for each month that Russian troops are still occupying Ukraine, and by $5 per barrel for each significant Russian air attack on Ukraine), down to the operational cost of production and transportation plus some symbolic margin (for example, around $25–35 per barrel for crude oil and corresponding prices for oil products), in order to keep Russian oil on the market and avoid the risk of a sudden hike in oil prices like that of early 2022.
The coalition countries should start by reviewing the price cap on petroleum products, setting it below the market level, then making it subject to a similar steady decrease. This mechanism would be more effective than simply lowering the cap as a one-off action, as recently proposed by a number of countries. A schedule of decreases would strongly affect the expectations of the Russian political elite by signalling to them the finiteness of the game, while giving them some room for manoeuvre to prevent severe long-term harms to the Russian economy and stop oil industry assets from falling into disrepair. If done without compromise, the measures set out in this paper would demonstrate the coalition’s resolve and determination and send a clear signal to Russian elites that the Putin regime’s ‘vertical of power’ is unsustainable.
