On May 19, the United Kingdom did two things at once. It legislated, for the first time in binding form, a ban on imports of refined petroleum products made in third countries from Russian crude — the “refining loophole” that ministers had promised to close back in October. And on the same day, it carved diesel and jet fuel out of that ban under an indefinite trade license.
Petrochemicals, naphtha, heating oil, and fuel oil are now prohibited from import in UK law, but the two products that account for the overwhelming bulk of the trade are not. The government calls this a tightening of sanctions. On the question that actually matters to the Russian budget, it is the opposite.
Three months after the closure of the Strait of Hormuz, the formal system of Western sanctions on Russian oil remains untouched. The G7 price cap is still in force. The European Union’s ban on imports of refined petroleum products made in third countries from Russian crude, adopted in January as Article 3ma of the 18th sanctions package, remains on the books. The US designations of Rosneft and Lukoil from October 2025 have not been rescinded.
And yet, on the metric that matters most to the Russian budget — the discount at which Urals crude trades to dated Brent — the sanctions regime is functioning less and less like one.
The discount is the quiet engine of the entire oil sanctions effort. It is not a tax collected by Western governments; it is a price penalty extracted by the market on every barrel of Russian crude, paid for in the form of revenue Moscow does not receive.
At its post-invasion peak in mid-2022, the Urals discount to Brent reached roughly $32 per barrel. It widened again in early 2023 to around $30 following the EU embargo and the introduction of the G7 price cap. After the build-out of Russia’s shadow fleet through 2024, it settled into a steady state of $10–15 per barrel — uncomfortable for Moscow but tolerable.
The October 2025 designations of Rosneft and Lukoil by the US pushed it back out toward $20, and at one point in late January, Indian refiners were demanding discounts close to the widest levels on record.
Then came the Iran war. By April, the Urals discount had not merely narrowed; it had largely vanished. At points in March and April, Urals traded at parity with, or even briefly above, dated Brent — an outcome unthinkable for three years. The average price for the month was around $112 per barrel, with peaks near $125.
Even after the Brent rally cooled, the differential through May has hovered around single-digit dollars, against a structural discount of $10–$15 that prevailed for most of the post-shadow-fleet period and the $20-plus that followed the autumn US designations. For the Russian Ministry of Finance, every barrel sold at a narrowed discount is a direct addition to budget revenue that no Western sanctions adjustment was supposed to allow.
There are three reasons for this. Two of them are political choices made in Washington and London.
The first is the war premium itself: with the Strait of Hormuz closed and Gulf supplies disrupted, Asian buyers have competed for Russian barrels rather than discounted them. That was always going to happen.
The second is the United States’ rolling general license, first issued by Treasury Secretary Scott Bessent in March, allowing buyers — India in particular — to take delivery of Russian oil already at sea. The license has now been extended three times, with each extension preceded by a brief political theatre of letting it lapse before issuing a new one.
The third, and most consequential for the architecture as a whole, is what the United Kingdom did on May 19.
The British move is best described not as an easing but as a partial-easement-within-a-tightening, and the structure matters. Through the Russia (Sanctions) (EU Exit) (Amendment) Regulations 2026 (SI 2026/543), the UK formally legislated against third-country imports of refined petroleum products. But on the same day, the Department for Business and Trade issued General Trade License GBSAN0004, granted an indefinite carve-out for diesel and jet fuel. The effect of all this is to leave things pretty much as they were.
The beneficiary is overwhelmingly India, with Turkey a distant second. Through 2025, India absorbed roughly 80% of seaborne Urals exports, with the two private refiners Reliance Industries and Nayara Energy — the latter part-owned by Rosneft — accounting for almost half those shipments.
How much of the refined products (other than now permitted diesel and jet fuel that will now enter Britain) is genuinely Russian-free, and how much depends on refiner attestations of doubtful enforceability, is precisely the kind of question that the original sanctions regime was designed to avoid having to ask.
The EU’s January regulation explicitly refused to accept what is known in the trade as a mass-balancing approach — the practice of treating Russian and non-Russian crude as separate on a refinery’s books, even when they are physically mixed in the same pipes, tanks, and distillation columns, by attributing the Russian molecules to whichever customers happen to be in countries that do not care.
Brussels insists that European-bound products must be physically segregated from Russian crude, with proof of a 60-day washout period. The British license is silent on the question: it does not require segregation, attestation, or proof of origin. It simply permits the import of diesel and jet fuel, and bans the rest of the products that have been “refined in a third country from Russian crude oil” — a phrasing that implicitly accepts that the product is at least partly Russian-derived.
In rejecting the EU’s standard, the UK has accepted, by default, exactly the mass-balancing logic that Brussels spent 18 months building its sanctions architecture to prevent. It’s not clear yet how this definition would work in practice for the products other than jet fuel and diesel, which can now flow freely.
The two Anglo-American moves operate on different ends of the same chain. The US extension keeps Russian crude flowing legally to the refineries that have absorbed the redirected volumes since 2022. The UK license re-opens a meaningful end-market for the products that those refineries make.
Considered separately, each can be defended as a response to an acute supply emergency. Considered together, they restore most of the commercial logic that the West spent three years dismantling: the refiner faces less risk on the buy side, and a wider universe of legal customers on the sell side. The discount the refiner demands from Moscow shrinks accordingly. The British license reinforces a trend that the war then dramatically accelerated.
The financial benefit to Russia is real but indirect, and this is worth being precise about. No crude exporter in Russia receives a payment from a British buyer when a cargo of diesel arrives at Fawley or Grangemouth. The crude was sold months earlier to an Indian or Turkish refiner.
What Russia gains is the cumulative effect on every subsequent transaction. When Reliance, the Indian state refiners, or STAR, sign their next term contract with a Russian supplier, they negotiate the discount on the crude with reference to the legal and reputational risk of placing the product they make from it. Britain has just reduced that risk.
The discount falls; the price Russia receives rises; the gain compounds across the full volume of Russia’s seaborne crude exports, which run at four to five million barrels per day. On those volumes, every $10 per barrel of discount narrowing is worth roughly $1.6bn a month to the Russian budget — close to $20bn a year. The move from the $20-plus discount of late January to the single-digit discount of May is, on these volumes, the equivalent of a multi-billion-dollar quarterly transfer from Western consumers to the Russian Ministry of Finance.
The European Union is now in the awkward position of running a sanctions regime tighter than that of its principal Western partners. Article 3ma, in force since 21 January, prohibits EU imports of refined petroleum products processed in third countries from Russian crude — exactly the trade that the UK has now licensed on its two largest product categories.
The complication is structural. Annex LI of the regulation lists the United Kingdom, alongside the United States, Canada, Norway, Switzerland, Australia, Japan, and New Zealand, as a “partner country” whose exports are exempt from the crude-origin documentation requirements that apply to other imports. The exemption was granted on the assumption — reasonable in January — that British and EU policy on Russian-origin products was aligned. As of May, on diesel and jet fuel, it is not.
Whether this means that products handled, blended, or transshipped through British facilities can now enter the EU under the partner-country exemption is a question that will keep compliance lawyers occupied for some months. The answer is genuinely unclear.
It may turn out that EU enforcement authorities tighten the partner-country interpretation in practice, or that Brussels amends Annex LI itself. It may equally turn out that the route remains open in fact, even if formally restricted. The point is that the question now exists, and it did not before May 20.
The cumulative effect is a partial lifting of the oil sanctions regime without anyone having lifted it. The price cap remains nominally at $47.60 per barrel; Urals have traded above $100 for much of the spring. The EU’s third-country refined products ban remains on the books; the UK’s parallel ban exists in law for the first time, but with the two most commercially significant products carved out.
The October US designations of Rosneft and Lukoil remain in force; the secondary sanctions risk that gave them teeth has been substantially reduced by the US Treasury’s own general licenses. The Russian discount, the most reliable indicator of how much economic pressure the regime is actually applying, has narrowed by an order of magnitude over six months.
This matters for the strategic logic of the sanctions effort, not just for its bookkeeping. The premise of the 2022–2025 architecture was that economic pressure on Russia would be sustained until the Kremlin made political concessions on Ukraine. The expected sequence was that Moscow would offer something — a ceasefire, troop withdrawals, a negotiating posture — in exchange for relief.
What has happened instead is the inverse. The Kremlin has offered nothing. Western governments, responding to a supply shock originating in a different war on a different continent, have eased the pressure unilaterally. The result is a transfer of revenue to the Russian budget that the design of the sanctions regime was specifically intended to prevent, delivered without any of the political conditions that would have justified it.
Whether the loosening is reversed when oil markets normalize is now the central question. The American waivers, renewed in 30-day increments, are at least formally short-term instruments. The British license is not. And the EU’s Article 3ma exception for partner countries is a piece of legislation, not a policy decision that can be quietly walked back.
The longer the current arrangement persists, the more it becomes the new baseline — and the harder it is to argue that the oil sanctions regime is still, in any operational sense, the one that was adopted.
Thus, Vladimir Putin has achieved a significant victory in the war in Iran. It is not measured in any single barrel or any single quarter’s revenue. It is measured in the steady restoration of the commercial architecture that Western sanctions were designed to break — and in the precedent that economic pressure on Russia, having been built up over three years, can be quietly disassembled in three months when the West finds it inconvenient to bear the cost.
Alexander Kolyandr is a Non-Resident Senior Fellow at the Center for European Policy Analysis (CEPA), specializing in the Russian economy and politics. Previously, he was a journalist for the Wall Street Journal and a banker for Credit Suisse. He was born in Kharkiv, Ukraine, and lives in London.
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