Energy Sanctions Types
Prerequisites
Sanctions on Russian oil were designed to cut Kremlin revenue without crashing global supply. The tool they chose (a price cap) had never been tried before, because traditional sanctions (embargoes) would have spiked oil prices and punished the sanctioners.
Energy sanctions fall into three categories with different mechanisms and tradeoffs. Embargoes prohibit all purchases of a country's energy exports (the US embargo on Iranian oil since 2018). Price caps set a maximum price at which the sanctioned country can sell, enforced through insurance and shipping services (the G7 $60/barrel cap on Russian crude). Technology sanctions restrict access to equipment needed for production (the EU ban on exporting oil exploration technology to Russia after 2014).
Embargoes are the bluntest tool: they remove supply from the market entirely, risking price spikes that hurt importing countries. Price caps attempt to keep supply flowing while reducing the seller's revenue. Technology sanctions operate on a longer timeframe, degrading production capacity over years rather than months.
The Russian price cap in practice. After the G7 imposed a $60/barrel cap in December 2022, Russia's Urals blend traded at roughly $50-60/barrel while Brent crude sat at $75-85.
How is a price cap enforced when the sanctioning countries don't buy the oil?
Insurance and shipping. Western companies dominate maritime insurance and tanker services. The cap says: any tanker using Western insurance must buy Russian oil at or below $60. Russia circumvented this partly through a "shadow fleet" of aging tankers with non-Western insurance, but at higher shipping costs and safety risk.
The G7 price cap on Russian oil differs from a traditional embargo in that:
A traditional embargo removes supply from the market (risking price spikes). The price cap attempts to maintain supply volume while capping the seller's revenue per barrel.
The answer is DLesson complete
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