Who helps Russia circumvent oil sanctions, including doing it at the expense of Ukraine?

More than three months ago, on February 5, 2023, European sanctions against Russian oil products came into effect. The introduced measures included a ban on supplies to EU countries and the establishment of a maximum price level for gasoline, diesel fuel and some other refined oil products. In terms of sanctions for cutting revenues to the budget of the Russian Federation, European restrictions are working because the oil and gas revenues of the aggressor country have halved this year. However, it has not yet been possible to completely remove Russian fuel from the EU and Ukraine.

The export of energy resources is the main factor in the success and prosperity of the Russian economy. Thanks to its rich subsoil, Russia was able to earn money and political influence in the world, and it was this sector that was the first to be hit by Western sanctions. This led to large-scale transformations of fuel flows, dividing the world into those who are in favor of the continued supply of fuel to their country from Russia, and those who are against it. Russians began to look for new sales markets for their oil and fuel.

Is the window to Europe closed?

If oil can be sold only to countries that have oil refineries, then diesel fuel is a much more liquid commodity that everyone needs. Due to the cessation of overland supplies to Europe in the first quarter of 2023, the export of diesel fuel from Russian ports increased by 17% compared to the same period last year. It should be noted that Belarusian fuel also has no other sales market and its implementation, except for Russia and Russian ports.

Not being able to unload in Europe, the ships go to sea terminals in Turkey, Saudi Arabia, UAE, Morocco and other countries. In a few months, the small shipments of diesel sent from Russia to these countries grew and turned into incredibly large ones (see Fig. 1).

Huge volumes of fuel are transferred at sea to other vessels (ship-to-ship operation, STS). In March and April, almost 20% of the volume of diesel fuel shipped from Russia by sea was changed by the ship during the follow-up to the port of destination. This makes it possible to reduce transport costs on long routes, and also to use STS to avoid sanctions. Vessel tracking services show that the largest volumes of STS operations were carried out off the coasts of Greece, Gibraltar and Togo. After transshipment, the tankers with the Russian product were on their way to the ports of Saudi Arabia, UAE, Turkey and Belgium. According to traders, in some cases during STS operations, Russian diesel fuel may be mixed with a product of another origin and no longer be considered Russian according to European legislation.

Moreover, the activities of the infamous shadow fleet, which was formed by Russia and its allies to ease sanctions, are shrouded in mystery and a thick fog. But most tankers can be monitored via satellite.

The geography of buyers of Russian diesel fuel during the era of the European embargo is colorful and somewhat strange (see Fig. 2). However, only at first glance, everything has an explanation. The main explanation and reason for buying fuel in the Russian Federation is its low price. Since the beginning of February, when the opportunity to conduct market relations and sell fuel to European countries has suddenly disappeared, it has become extremely difficult to sell oil products at market prices. The number of buyers among neighboring countries rapidly narrowed, and this forced the Russians to give fantastic discounts on fuel, so that it would be profitable to deliver it to, for example, Brazil. Rumor has it that some boats left the city of Prymorsk with a discount of 250 dollars/ton, or 30% of the cost of diesel fuel in Northwestern Europe. This "bonus" is enough for the fuel to reach the Mediterranean Sea, and then reach the final consumers, including Ukraine...

Politics is a completely different story. For example, Brazil, one of the largest recipients of fuel, is located on the other side of the globe. The country receives Russian diesel fuel for 15,000 km for a reason. After all, for every tanker that arrives in the country, the president of Brazil, Luiz Inácio Lula da Silva, has to pay with loud pro-Russian and anti-European speeches.

Spanish shame in Morocco

Let's consider the example of Saudi Arabia and the United Arab Emirates. They were considered the first to help Europe replace Russian fuel volumes. But this help turned out to be somewhat unexpected. The countries of the Persian Gulf have become buyers of Russian volumes of fuel, which they mix with their own fuel and send to European countries. However, there are other, more refined and at the same time primitive schemes, when Russian oil products are sent to the EU with "Arabic" documents.

At the end of April, a loud scandal swept through Spain. The head of the local oil giant Repsol, Josu Jon Imaz, said that, despite the embargo, the supply of Russian diesel fuel to the country continues. Oil products are allegedly shipped from Morocco, which is on the list of the largest recipients of diesel fuel from the Russian Federation. And this is despite the fact that the only Moroccan oil refinery closed in 2015 and the country became a net importer of petroleum products. In addition, in 2023, a number of tankers heading from the city of Prymorsk stopped very suspiciously near the Moroccan Tangier, and then the export of Saudi Arabian fuel began from there. The Spanish government has launched an investigation.

One of the big European traders told us on the condition of anonymity that his company was also interested in offers from Morocco back in March: "These are not very favorable terms, but this fuel in the Baltic was 3-5 dollars/ton cheaper than the market prices." According to him, at the company's request, Moroccan traders sent 100% authentic certificates of origin belonging to Saudi Arabia.

"But we know how to calculate the cost of logistics and understand that a product from Saudi Arabia cannot cost that much in the Strait of Gibraltar," says a European trader. The sellers explained the low price by the fact that the tankers that deliver Russian fuel to the Red Sea, in order not to return empty, take diesel fuel from Saudi Arabia and take it, in particular, to Morocco. In this way, it is really possible to save a decent amount of money.

However, that fuel turned out to be Russian. "Laboratory research conducted on our behalf showed all the signs that this diesel fuel comes from the city of Prymorsk. And just a few days later, the scandalous statement of Repsol representatives confirmed our suspicions," says the head of the oil company.

According to analysts, the aforementioned shadow fleet can physically dump fuel in Morocco, and documents of origin are carried there by ships returning from the Persian Gulf to the Russian Federation. That is, the navigation services show that the tanker is really leaving the port of Saudi Arabia, but it is only carrying documents.

It smells like Russia here...

However, Turkey became the most convenient haven for Russian fuel. Thanks to its geographical location, the presence of a developed port infrastructure and the huge annual consumption of 22-24 million tons, the country has acquired the status of a key buyer of "bloody" diesel fuel (see Fig. 3).

According to ship tracking services, in the first quarter, approximately a quarter of all maritime diesel fuel exports from the Russian Federation went to Turkey. At the same time, supplies from other countries have significantly decreased or stopped altogether.

According to the Turkish Institute of Statistics, in the first quarter of 2023, the volume of imports of Russian diesel fuel into Turkey amounted to 2 million tons, or 77% of the total imports (see Fig. 4). In the same period of 2022, this share was only 43%, and in the first half of the year it was only about a third.

Accumulating huge volumes of diesel fuel from Russia and India, which has almost completely switched to Russian oil, Turkey has become the largest hub in the Black Sea and Mediterranean regions. Moreover, Turkish ports are also able to receive huge 100,000 tankers from India, which Romanian or Bulgarian terminals are not able to do. According to the data of the Institute of Statistics, in the first quarter of 2023, about 550,000 tons of diesel fuel transited through Turkish terminals, most of which went to Ukraine and Romania, from where, again, a large share went to Ukraine (see Fig. 5).

As we can see, a huge amount of diesel fuel on the Ukrainian market comes from terminals that actively cooperate and make good money on the transshipment of Russian fuel. And its share is growing. Of course, according to the documents, Turkish transshipments send anything to Ukraine and EU countries, but not Russian resources. Such countries as India, Egypt, Albania, UAE, Saudi Arabia closely cooperate with fuel supplies from the Russian Federation. All these countries are involved in the business conducted in the Mediterranean terminals!

According to statistics, in January-April 2023, the origin of a significant share of diesel fuel imports was confirmed purely declaratively, based on trade and logistics documents. For example, in March, only 10% of sea consignments had a confirmed origin (see Fig. 6).

But, for example, in April, more than 90,000 tons of diesel fuel imported from Turkey and Romania were declared to be of Indian origin. Half of the diesel fuel came from the port of Marmara. However, according to data from ship monitoring services, the last time a ship from an Indian port came to Marmara was on February 16. And the last supply of Indian fuel to Turkey (Mersin port) was on March 30, and even then only 33 thousand tons were delivered.

In order to strengthen the control over the import of suspicious fuel, a recent decision of the Ukrainian government now requires that its origin be confirmed only with the help of a certificate. This is an international document of a fixed form, issued only by authorized institutions. Will it stop the flow of fuel with a distinctly Russian spirit? Unless only partially. Only the most brutal batches of fuel that cannot provide documentary denial of Russian origin will not enter the market. The rest of the fuel will sooner or later find ways to obtain the necessary documents. The case of the Moroccan invasion of Spain proves that any documents can be found if desired. It is even possible to find documents from Saudi Arabia, where, most likely, severe punishment is provided for such actions.

Ukraine, like the EU, should prepare for the fact that schemes for circumventing the ban will be improved. The EU has set a course for an uncompromising ban on the use of Russian fuel. What about Ukraine? If we decide to permanently cut off suspect supplies, stricter barriers to questionable petroleum products must be put in place. The position in which Ukraine found itself and the actions of trading partners in agricultural products, in particular in Turkey, give our country full unlimited powers to protect our rights.

Why is the situation even worse than it seems at first glance? Because the listed countries that supply fuel to Europe and, in particular, the ports of Bulgaria and Romania, even with non-Russian diesel fuel, have a huge competitive advantage thanks to the profit on the bloody resource. Increasingly, they will push companies that do not want to do business with Russians out of the market. There are already such cases: it took three months for suppliers of Russian liquefied gas in the Baltic countries and Poland to almost completely capture the Ukrainian market. Ukraine must fight and resort to the implementation of unpopular measures even towards political partners, especially since the latter did not think long when introducing an embargo on our agricultural products.