As G7 leaders gather in Kananaskis, nestled within the Canadian Rockies this weekend, the potential for significantly stricter sanctions on Russia will be a pivotal topic.
The Ukraine War is approaching another crucial juncture: Vladimir Putin has ramped up missile and drone strikes on Ukrainian cities, causing concerns that a Russian ground offensive is on the horizon.
While President Donald Trump has expressed public frustration with Mr. Putin’s continuous assaults on civilian targets, he continues to delay a more robust response.
In the upcoming ten days, a significant NATO summit in The Hague and a gathering of EU leaders in Brussels will shed more light on Mr. Trump’s stance regarding Ukraine and the wider issue of European security.
There’s a growing belief that Russia’s economy, despite managing sanctions better than anticipated, may be more susceptible than the Kremlin acknowledges.
This week, the European Commission introduced its 18th sanctions package, aimed at halting the flow of refined Russian crude oil into Europe, while simultaneously advocating for a lower oil price cap agreed upon by the G7.
In July, the commission is set to propose a complete phase-out of Russian fossil fuels, particularly LNG.
Simultaneously, US Senators Lindsey Graham (Rep) and Richard Blumenthal (Dem) are championing a bill that aims to exert “bone-crushing” pressure on Russia by imposing 500% tariffs on countries that continue buying its oil.
Senators Richard Blumenthal (L) and Lindsey Graham are advocating for their bill in the US Senate.
However, both initiatives encounter significant hurdles.
The price cap on Russia’s seaborne crude oil, established at $60 per barrel in December 2022 by a joint decision of the G7 and EU member states, was intended to prevent a total ban that could spike prices and boost Kremlin revenues, while still allowing oil to flow with reduced benefits to Russia.
‘Shadow fleet’
The price cap was enforced through the West’s virtual monopoly on maritime insurance. To bypass the cap, Russia began acquiring end-of-life vessels, effectively creating a parallel shipping network with questionable insurance — leading to the term “shadow fleet.”
The EU and G7 responded by sanctioning individual ships: the US targeted 200 vessels, the EU sanctioned 154, and the UK 177. Consequently, ports became increasingly hesitant to allow these oil tankers to dock, while flag states like Panama and Honduras began de-registering them (the EU recently added another 77 shadow fleet vessels to its sanctions list).
Experts suggest that Russia, which still derives one-third of its export revenues from crude oil, continues to find ways to circumvent the price cap.
Nonetheless, the EU is confident that it has significantly curtailed oil revenues. Reports indicate that India, Turkey, and China—the largest buyers of Russian oil—are pressuring Moscow to sell its crude below the price cap.
Now, the EU seeks to lower the price cap further. Despite a rise in prices from Israel’s strike on Iran, the trading price of crude has dipped to approximately $65 a barrel, rendering the $60 cap ineffective.
This week, European Commission President Ursula von der Leyen proposed reducing it to $45.
This proposal was strategically timed ahead of the G7 summit: Europe cannot undertake this alone.
The commission believes that most G7 partners are supportive, but the Trump administration remains hesitant. US Treasury Secretary Scott Bessent is reportedly skeptical and insisted on removing references to a lower price cap from last month’s G7 finance ministers’ final communiqué in Banff, Alberta.
While EU officials assert that efforts to persuade President Trump will persist, there’s a possibility that the other six G7 countries may proceed independently, as the UK and EU cover most aspects (such as identifying the shadow fleet and maritime insurance).
However, sources acknowledge that the decision-making dynamics within the Trump administration are “difficult to predict.”
Brussels is also mulling a ban on any EU operator involved in transactions, directly or indirectly, via the Nord Stream 1 and 2 pipelines, while also aiming to limit the amount of Russian crude entering member states through back channels, as it has been refined and relabeled elsewhere.
Officials concede there are conflicting figures regarding the volume of relabeled Russian crude—predominantly refined in India and Turkey—entering Europe.
India and Turkey imported 1.7 million barrels per day of Russian crude in the first quarter of 2025, as per LSEG data; EU member states imported more than 350,000 barrels from those countries during the same timeframe.
A petrol station of Russia’s oil company Tatneft in Moscow.
EU officials state that the onus of proof would shift to exporting nations to demonstrate that the refined oil is not originally Russian, but this may prove challenging.
“The [European] Commission implementing such a ban would be difficult, given that refiners blend various types of crude oil,” notes Warren Patterson, head of commodities strategy at ING. “Identifying the origin of the crude oil becomes a complex task.”
The Kremlin remains publicly unfazed.
“Naturally, Russia has not been living under restrictions for just a day,” spokesperson Dmitry Peskov stated this week. “We have long operated under such conditions, which we continue to view as unlawful. Russia has gained substantial experience that allows us to mitigate the adverse effects of such measures.”
The European Commission has also proposed cutting off an additional 22 Russian banks from the Swift international payments system, converting the partial ban on financial institutions into a full one.
The 18th sanctions package could be finalized by month-end, though it may face objections from Hungary and Slovakia.
Robert Fico, Slovakia’s pro-Russian prime minister, has expressed he would withhold support for the package—requiring unanimity—unless the commission addresses issues arising from a complete phaseout of Russian fuel.
In reality, it has been the inconsistent response from the Trump administration to the Ukraine War that has prompted the EU to initiate what could be its toughest sanctions package to date.
In Kyiv on 10 May, leaders from Ukraine, Britain, France, Germany, and Poland had sought to appeal to Russia—believing they had the backing of the Trump administration—for an immediate 30-day ceasefire or face severe sanctions.
French President Emmanuel Macron, Ukrainian President Volodymyr Zelensky, and UK Prime Minister Keir Starmer following talks in Kyiv in May.
Instead, the US President vigorously supported a call from Vladimir Putin to initiate talks in Istanbul the following week (with no commitment to a ceasefire). Mr. Putin did not attend the talks, which were conducted by a lower-level Russian delegation, and has since escalated air attacks while insisting on his maximalist war objectives.
Moscow seems to believe that military success and the demoralization of the Ukrainian populace are more promising than ceasefires.
“The aim of the [18th sanctions] package is to intensify pressure on Russia and encourage them to negotiate with genuine intentions,” says Svitlana Taran, an analyst at the European Policy Centre (EPC).
“At present, Russia is engaging in negotiations but lacks any real intention to reach a resolution. Moscow remains confident that it can secure a war of attrition against Ukraine.”
In light of insufficient action from the White House, US senators Lindsey Graham and Richard Blumenthal are advocating for a bill in the Senate that—if approved by President Trump—would impose tariffs of 500% on countries that continue purchasing Russian crude oil, gas, uranium, and other exports.
The bill currently boasts 82 sponsors from both parties, with Senator Graham—viewed as a bellwether of Republican sentiment towards Ukraine— and Senator Blumenthal hopeful for adoption before the 4 July recess.
Supporters of the bill contend that Mr. Putin has been stringing the US president along and has no motivation to engage in negotiations without tougher measures.
‘Centering astronomically high tariffs as US policy towards Russia’s war is misguided’
However, the Sanctioning Russia Act (SRA2025) has its critics.
President Trump would be required to determine every 90 days that Mr. Putin is refusing to negotiate a peace agreement, at which point sanctions would become mandatory. These would target President Putin, Russian oligarchs, and banks and other financial institutions.
The most striking aspect is the imposition of 500% tariffs on countries purchasing Russian crude oil. Given that China is among the largest buyers, this could disrupt current negotiations between Washington and Beijing aimed at averting a damaging trade war.
“Centering astronomically high tariffs as US policy towards Russia’s war is misguided: a threat that will never be executed lacks genuine coercive power,” argues Stephen Sestanovich from the Council on Foreign Relations. “A bill that halts all trade with the US’s most important commercial partners is exactly that sort of threat.”
The bill’s authors maintain it is designed to focus minds and to convince Mr. Putin he cannot sustain his war efforts for another couple of years.
“Russia is already in a perilous economic state, as 40% of its economy is devoted to war production or compensation for soldiers,” Senator Blumenthal remarked during a recent visit to Kyiv. “Its primary source of revenue stems from oil and gas, with 70% being sold to India and China combined.”
While Senator Graham emphasizes his close collaboration with the White House in crafting the bill, President Trump has encouraged him to dilute certain key components and has expressed discontent with several aspects.
EU officials, while recognizing the necessity for increased US pressure on Moscow, are mindful of this.
“I’m not convinced that the bill will reflect what gets adopted, even if Trump chooses to sanction Putin,” states a senior EU source. “These Senate bills are notoriously aspirational until the White House refines them to outline what is achievable. [Senator] Graham will not act without Trump’s endorsement.”
Russia’s defense spending reached $140 billion last year.
Russian economy ‘clearly heading toward zero growth’
Nevertheless, there is an emerging consensus that this is the optimal moment to target the Russian economy.
On paper, Moscow has navigated sanctions effectively since 2022.
Though the economy shrank by 2.1% in 2022, it rebounded in the subsequent two years as Russia transitioned to a military economy, strengthened trade ties with China and India, capitalized on windfall fossil fuel profits, and utilized its reserves as a buffer against the steep decline in exports.
This enabled Mr. Putin to funnel significant resources into military expenditures. Between 2011 and 2021, the defense budget averaged $53 billion annually. This rose to $79 billion in 2022 and was projected at $94 billion in 2023.
Last year, defense spending surged to $140 billion, consuming 32.2% of the federal budget.
This level of spending has allowed the Kremlin to quell public dissatisfaction concerning the war by enhancing military salaries and social benefits, while ensuring business elites remain compliant. Investment in the military-industrial sector has produced its own economic growth.
However, considerable evidence suggests that this model may be reaching its limits.
It is estimated that up to a million able-bodied Russians have fled the country, whether in protest or to escape conscription; while nearly half have returned, the civilian economy is perceived as dangerously lacking in labor.
This situation has compelled companies to raise salaries to compete with military compensation, thereby exacerbating inflation. To rein in inflation from its current 10.2% rate, the Russian central bank has increased interest rates to over 20%.
In March, President Putin urged his government not to impede growth in its battle against inflation, while Alexander Shokhin, head of the Russian Union of Industrialists and Entrepreneurs, cautioned that Russia is “clearly heading…toward zero growth.”
A recent report from the Centre for Strategic and International Studies (CISS) indicates that Russia has reached the limits of extensive state spending on the military, with the consequences of prolonged sanctions, soaring inflation, and rising interest rates beginning to take their toll.
“Russia’s current account remains the country’s most glaring economic vulnerability,” the report states. “A dramatic decline in export revenues, an uptick in capital flight, or an additional rise in the country’s import costs, if timed fortuitously, could drive Russia toward a balance of payments crisis.”
‘Good cop-bad cop’ tactics
The mounting frustration in Washington regarding the Kremlin’s unyielding attacks on civilians appears to have prompted a change in attitude.
Initially, while the Biden administration was reluctant to impose stringent sanctions against Russia’s energy sector until the very end of his term, countries propelling Mr. Putin’s war efforts by purchasing crude oil faced no repercussions. Today, however, the sentiment is shifting.
Indeed, European nations that continue to depend on Russian oil might find themselves included in the US tariffs. Lindsey Graham assures that there will be exemptions for countries that have supported Ukraine’s defense.
A significantly tougher bipartisan reaction from Congress could present President Trump with a ‘good cop-bad cop’ strategy to deploy against Mr. Putin, despite his inclination to offer the Russian president considerable leeway.
Brussels prefers coordinated action alongside Washington. However, experts cite Europe’s complete oil embargo on Iran in 2009 as an example of how unilateral measures can drive a country to negotiate the 2015 nuclear agreement.
“Just as the EU oil embargo on Iran helped spur action in Washington a decade and a half ago, major new EU sanctions on Russia could catalyze similar responses today,” suggests Edward Fishman, a former Obama administration official writing in Foreign Affairs.
“Rather than waiting for Mr. Trump, Brussels should implement new penalties on Russia’s energy sector. Even unilateral EU actions would tighten the screws on Moscow and could encourage Washington to follow suit.”
