Russia's war against Ukraine is fought with missiles and tanks, but all of them are fueled by oil. Every day, tankers filled with Russian crude leave ports and head for buyers around the world, bringing billions back. Sanctions exist, but Moscow adapted - and kept the money flowing.
To understand how the system works, why the so-called "price cap" failed and what can still be done, we spoke with Andrii Klymenko - Head of the Black Sea Institute of Strategic Studies, a Ukrainian think tank, Coordinator of the Monitoring Group on Sanctions and Freedom of Navigation, and Editor-in-Chief of BlackSeaNews.
Find below the key points of our conversation.
According to Ukrainian energy analysts, hydrocarbons account for around 70% of Russia's export revenues and possibly even up to 80% today. The bulk of this is crude oil, far surpassing refined products in volume and value.
It quickly became clear:to limit Moscow's capacity to fund its aggression, its seaborne oil income had to be targeted.
The Baltic Sea remains the main artery.
Every single month, over 100 tankers carry up to 14 million tonnes of Russian crude out of the Baltic - and the world keeps buying it.
On December 5, 2022, the G7, EU, Australia, New Zealand and other countries introduced an embargo on Russian seaborne oil and petroleum products. But let's be clear: this was not a sanctions regime. It simply meant these countries stopped buying the oil themselves, third countries were never banned from purchasing it.
It is customary in international policy, so the plan was announced six months in advance, in June. That window triggered market speculation. Oil prices surged, and Russia earned hundreds of billions in windfall profits - a clear case of a poorly timed strategy.
To supplement the embargo, a "price cap" mechanism was introduced: $60 per barrel. At the time, oil prices ranged from $80-90, soon spiking to $110-120. With Russian production costs around $40, even at the capped price, the Kremlin still made a solid profit.
One key problem:
how do you control a price cap without access to pricing documents from a closed authoritarian regime?
Since February 24, 2022, Russia has shut down all customs data systems. Previously, customs in Russia, as well as in every other country in the world, shared product codes, categories, and pricing. That transparency vanished overnight.
To enforce the cap, a solution was proposed: maritime agents would submit price declarations to insurers. If a shipment was sold above $60, it would be ineligible for P&I (Protection and Indemnity) insurance - the world's most comprehensive coverage for maritime liability, including environmental disasters.
However, oil traders found a loophole. They turned to insurers in India, China, and Russia, companies that didn't require any documentation. The result: the price cap existed on paper, while Russian oil continued to flow, largely unchecked.
Western policymakers failed to grasp one strategic issue: the Russian regime and its economic system are deeply rooted in criminal logic dating back to the 1990s. For Russian oil traders, falsifying price documents is a routine and easy process.
Everyone pretends the price cap works - yet investigations by CNN, Reuters, AP, and Bloomberg have repeatedly shown that it's being widely violated.
The so-called "shadow fleet" is largely a myth, at least in the way it's commonly described: old vessels, anonymous owners, transponders turned off to avoid detection. The assumption is that this makes oil exports untraceable.
However, Ukrainian experts at the Black Sea Institute of Strategic Studies see a significantly higher figure - up to 30% more than Western counterparts. Yes, 1-3% of tankers might slip through unnoticed, but overall, the system is surprisingly transparent.
The key difference lies in the method: Ukrainian specialists track each tanker almost manually. Western firms rely on AIS-based platforms like MarineTraffic and VesselFinder, which collect and publish automatic ship signals - secondary data that can be manipulated.
And that's exactly what Russia does. It jams or disables AIS signals in port zones.
A tanker departing Ust-Luga might appear, based on signal reception, to be coming from Finland. Or a ship leaving Novorossiysk could look like it travelled between two Indian ports.
Current sanctions only restrict access to ports and maritime services of the G7, EU, U.S., Canada, and the UK. A tanker heading to China or India without stopping in Western ports breaks no rules.
Even transiting strategic waterways isn't restricted. In the Baltic, tankers can pass between Denmark and Sweden without a pilot. The English Channel operates similarly. The system is full of loopholes, and shipowners realised that there are no real consequences, so they continue.
Over the past six months, the Baltic states have taken the lead in combating Russian illegal exports. Ukraine is actively working with them through expert networks, government coordination, the President's Office and members of parliament. It's not just Lithuania, Latvia, and Estonia involved, but also Finland, Denmark, Poland, the Netherlands, Sweden, Norway, Iceland, and the UK.
These countries understand a critical fact: tankers crossing the Baltic each year bring Russia over $100 billion in oil revenue - more than all Western aid to Ukraine combined.
While Russian banks are cut off from SWIFT, oil payments from India, Africa and China don't return to Russia. Instead, the funds remain in offshore accounts and are used to buy sanctioned goods - microchips, optics, aviation parts and machinery.
These flow back into Russia via India, China, Kazakhstan, Türkiye and Georgia.
Ukrainian forces routinely find components made in the U.S., Europe and Japan inside Russian missiles and drones.
As long as this currency pipeline remains open, so does the Kremlin's primary source of war funding. Until it's cut off, the war will not end - it will only edge closer to the heart of the European Union.
Germany recently made headlines by seizing a Russian oil tanker. The vessel was old, listed for safety violations, and lost all power during a storm, nearly running aground. Authorities detained it, found a legal pretext, and confiscated both the ship and its cargo. So far, this remains the only case of real enforcement.
Estonia detained a tanker sailing under a false flag. It was held briefly, then released once the owner corrected the documents. In response, Russia promptly retaliated by halting a Greek tanker transporting shale oil from Estonia. The message is clear: Moscow reacts swiftly and without hesitation.
First, make sanctions real.
Ironically, the only "sanctions" that have actually worked came from Ukrainian drones hitting Ust-Luga port and the pipelines feeding it.
That was the only time Baltic Sea oil exports visibly dropped.****
Overall, this system is a sophisticated, brazen scheme, one that allows Russia to continue exporting oil and earning billions despite all formal restrictions.
Europe still operates through legal procedures, failing to understand that this is dealing with a rival that plays by no rules. Fear of escalation and a search for compromise dominate policymaking --- all while Russia's war-financing machine keeps running.
Many leaders are hesitant to provoke Russia, a reflex that has become a default in Europe's approach to conflict.
But a shift in public awareness is underway: this war won't end as long as tankers carrying Russian oil sail through European waters. Europe spends billions supporting Ukraine, yet still enables Russia to earn more.
It's a dangerous contradiction.
Reports of Russian military preparations targeting the Baltic states are growing - perhaps exaggerated, but they prime public opinion for decisive action. If the financial lifeline of this war - oil and gas exports - isn't cut, the war will continue. And it will keep creeping closer to the European Union's borders.
We encourage you to read more:
Ways to Reduce Russia's Revenues from Seaborne Crude Oil and Petroleum Products Exports
Database on Russian Blood-Soaked Export
ANDRII KLYMENKO, Head of the Black Sea Institute of Strategic Studies, Coordinator of the Monitoring Group on Sanctions and Freedom of Navigation, and Editor-in-Chief of BlackSeaNews.
Interviewed by IRYNA KOVALENKO, Journalist at UkraineWorld
This publication was compiled with the support of the International Renaissance Foundation. It's content is the exclusive responsibility of the authors and does not necessarily reflect the views of the International Renaissance Foundation.
