Convenience can trump EU's oil sanctions
Oil remains a weapon of consequence in the intriguing world of geopolitics. The EU's adoption of an 18th package of sanctions is aimed at escalating economic pressure on Russia. Once they are rolled out, the financial and trade restrictions could rattle the global oil market and singe the authors of the directive as well.
Inhibiting oil and gas supplies from Russia, the second largest OPEC+ oil producer, will heat up energy prices. The price cap of $47.60 a barrel, effective from September 3, purports to strangle Kremlin's revenues and weaken its military ambitions in Ukraine. An import ban on refined products derived from Russian crude January 21, 2026 onwards could lead to a high premium for oil out of West Asia.
However, the wider landscape reveals a different narrative. An estimated 5 million barrels per day of spare capacity with OPEC+ members could be configured to fill the gap. Kazakhstan, Iraq and the UAE have constantly exceeded quota allocations and plan to further raise production. Substantial new Caribbean and South American supplies will also hit the market early next year. Should the sanctions trickle down to the 'Siberian supplies', the fence-sitters will promptly fill the ensuing void. Thus, a price spike will be short-lived.
The present round of restrictive measures could be far less effective to attain EU's objective in the absence of US support via secondary sanctions. Complexities surface as Beijing engages with Moscow and Tehran in the energy sector. India continues to patronise Russian oil in tune with a judicious economic agenda. America's keenness to increase its presence in the Chinese and Indian markets—the two largest consumers—could propel Washington to restrict Moscow's flows, leading to cost pressures.
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