The Dynamics of Evasion: The Price Cap on Russian Oil Exports and the Amassing of the Shadow Fleet

Diego S. Cardoso, Stephen W. Salant, and Julien Daubanes

March 2025

To reduce funds for Russia’s Ukraine invasion, Western governments imposed a price ceiling on Russian seaborne oil exports using Western services. To sell above that ceiling, Russia developed a “shadow fleet” which uses no such services. We use a calibrated model driven by this fleet’s expansion to assess various sanctions. While all sanctions reduce the present value of Russia’s profits, we find that the tighter the ceiling and the tighter the enforcement, the less harm sanctions impose, contradicting conventional wisdom based on Hotelling’s lemma. However, policies to reduce the shadow fleet’s size may increase the sanction’s effectiveness.

Keywords: Economic warfare; Sanctions evasion; Hotelling’s lemma

JEL codes: D04, L51, Q41