Oil markets stumble as sanctions, tariffs and oversupply collide

EU sanctions, OPEC+ shifts and political risk are fuelling volatility in oil markets

Interview requests

Crude oil markets are being pulled in every direction—and no one seems to know where they’re headed next.

After weeks of internal debate, the European Union has now imposed its 18th package of sanctions against Russia since the start of the Ukraine war, tightening its grip on Russian oil exports. The latest measures reduce the price cap on Russian crude from US$60 to US$47.60 per barrel and target more than 100 additional “shadow fleet” tankers—vessels used to move oil covertly to bypass sanctions. EU leaders say the goal is to align the cap with prevailing global market prices and further restrict Russia’s energy revenues.

The price cap system, introduced by the G7 and EU in late 2022, allows Russian oil to be sold to non-Western countries—such as India and China—only if it is priced at or below the cap. Western companies are prohibited from providing key services like shipping, insurance or financing for any Russian oil sold above that limit. Since most of the world’s maritime insurance and oil shipping is handled by Western firms, the cap gives the West leverage to constrain Russia’s oil revenue without cutting off supply completely.

By lowering the cap from US$60 to US$47.60, the EU is tightening that squeeze, making it harder for Russia to find legal routes to sell oil at higher prices.

But the measures go beyond pricing. A full transaction ban has been imposed on the Nord Stream 1 and 2 pipelines—infrastructure built to carry natural gas from Russia to Europe—halting any further development or use. The EU also expanded restrictions on traders, transporters and entities that enable Russian energy flows, including a major Indian refinery linked to Rosneft, Russia’s state-controlled oil company.

In theory, these steps should tighten global oil supply and put upward pressure on prices. In practice, the response has been muted. The United States hasn’t adopted the lower cap, and traders largely expect Russian crude to continue flowing through grey and black markets. Many believe the impact on global supply will be minimal, at least for now.

The EU also banned imports of refined petroleum products made from Russian crude that are processed in third countries—a common sanction workaround—but exempted close allies including Canada, the U.S., the U.K., Norway and Switzerland, which are already aligned with G7 restrictions.

For Canada, a resource-rich country with a globally integrated oil sector, these developments matter. Global oil prices influence gasoline and diesel costs, heating fuel and shipping rates. They also affect Alberta’s oil and gas industry—a major driver of national GDP and federal revenues. When energy markets wobble, the Canadian economy often feels the ripple effects.

Adding to market tension is the spectre of oversupply. OPEC+, the alliance of oil-producing countries led by Saudi Arabia and Russia, had planned to boost production by 548,000 barrels per day in August, with a similar increase expected in September. That announcement cooled market sentiment temporarily. However, Bloomberg reports suggest the cartel is already considering a pause in output hikes come October, reflecting concerns about a global demand slowdown and swelling inventories.

The International Energy Agency warns that crude stockpiles are growing at a rate of one million barrels per day, with a projected surplus by the final quarter of 2025. That surplus—equivalent to 1.5 per cent of global crude consumption—could push prices down if demand weakens further.

Meanwhile, geopolitics continue to add instability. Iraq’s government recently approved crude exports from its semi-autonomous Kurdish region via the Iraq–Turkey pipeline, which could inject additional supply into the market.

In Washington, U.S. President Donald Trump has signalled his administration is considering tougher economic measures on Russia, including the possibility of secondary tariffs targeting energy exports. But most traders remain skeptical that such steps would disrupt global oil flows in the near term.

Even recent signs of strength in the U.S. economy—normally bullish for energy demand—haven’t lifted prices decisively. The ongoing tariff battles, lurching between escalation and retreat, have only added to the confusion. Oil markets have grown wary of trying to predict outcomes based on political posturing.

Without clear coordination among major players, volatility will remain the market’s default setting—and that spells trouble for oil-dependent economies like Canada’s.

Toronto-based Rashid Husain Syed is a highly regarded analyst specializing in energy and politics, particularly in the Middle East. In addition to his contributions to local and international newspapers, Rashid frequently lends his expertise as a speaker at global conferences. Organizations such as the Department of Energy in Washington and the International Energy Agency in Paris have sought his insights on global energy matters.