Why the G7 Oil Price Cap Failed: Shadow Fleets,War Premium Decay, and Lessons for Sanctions Design

The G7/EU oil price cap on Russian crude, implemented in December 2022 at $60 per barrel, was designed to reduce Russian revenues while maintaining global supply. Using daily price data and 25,399 vessel-level cargo records (January 2020--January 2026), we find the price cap did not function as a binding constraint. The war outbreak is associated with the largest change in the Brent-Urals spread (cumulative abnormal returns of $22.35/bbl, p<0.001), with no significant market reactions to subsequent sanction announcements. The apparent spread narrowing under the cap becomes statistically insignificant when measured as a percentage of Brent, and is absorbed entirely by a war premium decay model (half-life 2.4 years). Russia's shadow fleet grew from 40.5% (pre-war period average) to 62.6% (2024 annual peak) of seaborne exports, yet targeted vessel sanctions (January 2025) proved more effective than the price cap, reducing shadow fleet share to 51.7% (period average). A Pacific versus Atlantic quasi-difference-in-differences analysis suggests that spread narrowing was not driven by the EU embargo alone. Cumulative post-war revenue losses are estimated at $87--130 billion (central estimate $109 billion, based on spot spreads and seaborne volumes, excluding pipeline exports), of which shadow fleet expansion recovered only $2.2 billion. Our identification relies on event studies and conditional associations rather than quasi-experimental variation; nonetheless, the findings suggest that policymakers should prioritize targeted vessel designations and flag-state coordination over price-level adjustments. JEL Classification: F51 , Q41 , Q43 , G14