Despite western sanctions, there is more Russian fuel being exported
around the world than before the Ukraine crisis. It's just coming via
Saudi Arabia, India, China, and other trading states – with steep
commissions.
May
4, 2023
Despite
western sanctions imposed on Russia over the Ukraine conflict, some Asian and
specifically West Asian economies are importing significant amounts of Russian
gasoline at discounted prices, and reselling it with windfall profits to the EU
under their brand names.
Western
sanctions have forced Moscow to actively diversify its energy exports – oil and
gas exports accounted for 45 percent of the Russian government’s 2022 budget –
and it has rapidly filled the gap left by its diminished oil exports to Europe
with new customers in China, India, and the Persian Gulf nations.
Despite
the EU’s prohibition on seaborne exports, during the initial quarter of the
current year, Russian seaborne crude oil exports amounted to 3.5 million
barrels per day (bpd), surpassing the 3.35 million bpd recorded at the onset of
the Ukrainian conflict a year ago.
According
to industry analysts and oil executives, this has transpired despite western
sanctions that led to the severance of several active trading partnerships for
Russian oil in the EU markets.
Finding
ways around sanctions
Dubai-based
oil tycoon Hakam Valliani tells The Cradle that, in general, sanctions did not
significantly impact the Russian gasoline supply line as new buyers filled the
gap left by the EU market. Washington, he says, had enforced these limitations
to force the EU to buy expensive US gasoline rather than cheaper Russian oil.
When
compared to Russian liquefied natural gas (LNG), the price of US LNG is nearly
$1,000 per ton more expensive, so “the European Union is paying a
disproportionately huge amount for the US stuff,” Valliani explains.
“Sanctions
or no sanctions, individuals will find a way around by devising cunning
strategies to bypass restrictions,” he says, adding:
“This is scary to see that the entire
American-based price benchmark and the SWIFT system are collapsing, and a new
benchmark will be needed within the next five years. Russia now accepts a
variety of currencies when transacting fuel sales, including Indian rupees,
Chinese renminbi, and other regional currencies.”
Valliani
predicts that with the expansion of BRICS ( to BRICS+), there will be a decline
in the value of the dollar and the collapse of the International Monetary Fund
(IMF): “The world’s future source of gold and oil will come from BRICS+.”
This
has allowed countries like Saudi Arabia, the UAE, China, India, and Iran to
import the majority of Russian oil, not for domestic consumption, but to
transport it to third parties in energy-deficient markets in Europe and Asia.
Saudi import of Russian crude
According
to Reuters, Saudi Arabia has been importing unprecedented quantities of Russian
fuel to circumvent US sanctions. Traders have also taken advantage of lower
prices to build up fuel reserves at the Fujairah hub, located in the UAE.
Today,
West Asia is playing an increasingly important role as a supplier of industrial
fuel to Europe and Africa, with Saudi Arabia, Kuwait, and Russia contributing
to the fuel reserves in Asia.
As
the largest producer within OPEC and the top global oil exporter, Saudi Arabia
has had to step up its global energy supply – while keeping its own production
down, per OPEC+ decisions – due to US-imposed restrictions on direct imports of
Russian crude oil and oil products.
In
March and early April of this year, Saudi Arabia imported a record high 261,000
metric tons of Russian diesel. Three of the containers were unloaded in Jeddah,
while one was delivered to Ras Tanura. The free-on-board price range for
Russian diesel cargoes scheduled to load in March ranged from $60 to $70 per
barrel.
This
price is nearly $20 per barrel lower than the “Middle East benchmark,” which
falls below the price ceiling of $100 per barrel set by the G7 consortium,
thereby allowing traders to utilize western vessels and insurance services to
transport Russian fuel.
West
Asia wins
Recent
findings from the Center for Global Energy Policy at Columbia University have
alerted the European Commission that oil-exporting nations in West Asia have
largely benefited from the conflict in Ukraine.
The
study examines the implications of increased imports of Russian petroleum by
West Asian countries, which has manifested itself predominantly through price
increases and created an opportunity for the refining, storage, and
distribution of Russian petroleum.
According
to analysts, the primary exporters from the Persian Gulf region, such as Saudi
Arabia and the UAE, will become “balancers-in-chief in Europe,” providing a
supply of petroleum to the continent.
Perturbed
by Saudi Arabia’s imports of Russian diesel and its subsequent re-export to
Europe, the EU parliament has been compelled to start a discussion about the
new phenomenon and investigate “what evidence the Commission has to support its
claim that diesel fuel imported from Saudi Arabia to the European Union is not
simply rebranded Russian crude oil?”
The
group is also investigating the price gap between Saudi Arabia’s discounted
petroleum imports from Russia and the EU’s imports of petroleum from the
kingdom. It aims to determine whether Saudi Arabia and other market influencers
are currently playing a significant role in meeting Europe’s import needs and
preventing market contraction due to the ban on Russian oil.
Hakam
Valliani believes that oil from Russia is a necessity for both Europe and the
US, and while everyone is aware that this is a sanctioned product, they do end
up purchasing this item. He says that nearly 40 percent of US oil imports come
from Russia, and that traders in Southeast Asia, South Asia, Azerbaijan,
Kazakhstan, Turkiye, and the rest of West Asia rebrand Russian gasoline in
their respective countries.
Valliani
claims that even the banks are aware of these transactions but choose to
disregard them, adding that:
“There may not be a lot of Russian aviation
gasoline available, but the profit margin on it is 25 percent higher than that
of US-produced fuel. The profit margin on Euro 5 diesel is far bigger than that
of diesel produced in the Middle East or the United States. The margin on
diesel per metric ton is about $100.”
China
and India’s impact
Recent
reports also suggest that China and India are playing a crucial role in
Russia’s ability to avoid western sanctions and increase its oil shipments to
pre-Ukraine war levels.
India,
in particular, has emerged as a significant player in the global oil markets by
importing cheap Russian crude and converting it into fuel for Europe and the
US. In the fiscal year 2022–2023, India imported a large quantity of crude oil
from Russia, which allowed it to increase shipments of diesel and jet fuel to
Europe.
In
January, India imported a record amount of Russian oil, tripling in quantity
from the previous year. After Moscow lowered its oil prices for India –
following the onset of the Ukraine war – Russia became India’s primary oil
supplier, surpassing both Iraq and Saudi Arabia.
Russia’s
market share in India’s energy imports increased to 1.62 million barrels per
day in February, rising from a less than 1 percent share before the 2022 Ukraine
war to a whopping 35 percent stake today.
More
than a quarter of the 4.5-4.6 million bpd of Russian oil imported in 2022-2023
went to Indian refineries, and a long-term agreement between the largest oil
producer in Russia, Rosneft, and the largest Indian refiner, Indian Oil Corp,
can greatly increase and diversify the types of oil transported to India.
Russia-Iran
fuel trade
It
was recently reported that Russia has begun exporting gasoline and diesel to
Iran by rail earlier this year, with Moscow allowing Tehran to access up to
30,000 tons of gasoline and diesel in February and March.
Although
Russian officials announced in 2017 that oil products would be traded with
Iran, it appears that actual shipments did not start until 2023. The oil
consignments were transported to Iran by rail from Russia, via Turkmenistan and
Kazakhstan.
While
Iran needs natural gas and diesel to run its power plants and refineries, a top
oil refiner based in Saudi Arabia who asked to remain anonymous tells The
Cradle that there is a possibility that Iran may use the Russian consignment
for export to other countries.
The
source claims that Pakistan – in addition to Afghanistan – is a multi-billion
dollar informal market for Iranian oil, and the evidence of some gasoline shipments
from Iran being transported by truck to neighboring countries such as Iraq
supports the notion that Tehran is making money from gasoline trades.
Once
again, western sanctions have demonstrated their tendency to backfire. Russian
oil sales are booming, and Asia is reaping the economic benefits by reselling
cheaper Russian fuel at marked up prices to Europe – which is clearly the
biggest loser in this proxy conflict with Russia.
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