Russian oil finds ‘wide open’ back door to Europe, critics say

Russian oil finds ‘wide open’ back door to Europe, critics say
Опубликовано: Wednesday, 22 March 2023 04:54

Middlemen are cashing in as Russian crude finds indirect routes to the European market, politicians and industry insiders allege.

European Commission President Ursula von der Leyen has declared Europe’s dependence on Russian oil and gas "history."

But others, from senior Ukrainian officials to MEPs and industry insiders, say that chapter of history is still being written.

Significant quantities of Russian hydrocarbons, particularly oil, are still flowing around sanctions and into the European market, they say, earning payments that fund Vladimir Putin’s war machine.

“I had a friend in New York in the 1990s who complained cockroaches would get into his apartment through any available hole — that’s what Russia is doing with its energy,” Oleg Ustenko, economic adviser to Ukrainian President Volodymyr Zelenskyy, told POLITICO. “We have to fix these holes to stop Russia receiving this blood money they are using to finance the military machine that is destroying our country and killing our people.”

Crude oil is notoriously difficult to track on global markets. It can easily be mixed or blended with other shipments in transit countries, effectively creating a larger batch of oil whose origins can’t be determined. The refining process, necessary for any practical application, also removes all traces of the feedstock’s origin.

A complex network of shipping companies, carrying the flags of inscrutable offshore jurisdictions, adds a further layer of mystery; some have been accused of helping Russia to hide the origin of its crude exports using a variety of different means.

“Unlike pipeline gas, the oil market is global. Swap and netting systems, and mixing varieties are common practice,” said Mikhail Khodorkovsky, a prominent exiled critic of Putin and the former CEO of oil and gas giant Yukos.

“The result of the embargo is a significant increase in Russian transportation costs, a significant redistribution of income in favor of intermediaries, and some additional discount due to the narrowing of the buyers’ market.”

Crude workarounds?

The EU has largely banned Russian fossil fuels since the invasion of Ukraine in February 2022, with exceptions for limited quantities of pipeline crude oil, pipeline gas, liquefied natural gas (LNG), and oil products.

But large volumes of Russian crude oil — a bigger source of revenue than gas — are still being shipped onto global markets, leading some experts to suspect they are finding their way to Europe’s market through the back door.

“Since the introduction of sanctions, the volumes of crude oil Russia is exporting have remained more or less steady,” said Saad Rahim, chief economist at global commodities trading firm Trafigura. “It’s possible that Russian oil is still being sold on to the EU and Western nations via middlemen."

Crude oil is notoriously difficult to track on global markets | Image via iStock

One potential route into Europe is through Azerbaijan, which borders Russia and is the starting point of the Baku-Tbilisi-Ceyhan (BTC) pipeline, operated by BP. The port of Ceyhan, in Turkey, is a major supply hub from which crude oil is shipped to Europe; it also receives large quantities from Iraq through the Kirkuk-Ceyhan pipeline.

François Bellamy, a French MEP and member of the European Parliament’s Committee on Industry, Research and Energy, aired suspicions about this route in a recent question to the Commission. Data show that Azerbaijan exported 242,000 barrels a day more than it produced between April and July last year, he said — a large margin over domestic production, which stood at 648,000 barrels a day last month and is in long-term decline, according to ministry figures.

“How can a country diminish its production and increase its exports at the same time? There is something completely inconsistent in the figures and this inconsistency creates suspicions that sanctions are being circumvented,” Bellamy said.

A spokesperson for the Commission said it is working to crack down on loopholes in sanctions regimes and has appointed the EU’s former ambassador to the U.S., David O’Sullivan, as a special envoy tasked with tackling circumvention. The official also pointed out that data cited by Bellamy on Azerbaijani oil transactions, the most recent publicly available, “happened before the sanctions entered into force so there is no question of evasion of sanctions there.”

“Azerbaijan does not export Russian oil to the EU via the BTC pipeline,” said Aykhan Hajizada, spokesperson for the country’s foreign ministry, adding that while “Azerbaijan continues to use all non-sanctioned oil regardless of source,” it “remains committed to conducting its supply and trading operations with the utmost care and diligence, in line with relevant laws and regulations.”

BP has previously been forced to deny that the BTC pipeline carries Russian oil, and data seen by POLITICO for crude shipments from Ceyhan shows a recent dip in the volume of exports to the EU, from around 3 million tons per month (about 700,000 barrels per day) in early 2022 to around 2 million tons a month this year.

Slick operations

At the same time, though, Turkey doubled its direct imports of Russian oil last year and has refused to impose sanctions on Russian crude despite simultaneously offering military and humanitarian support to Ukraine.

Finland’s Centre for Research on Energy and Clean Air (CREA) warned late last year that "a new route for Russian oil to the EU is emerging through Turkey, a growing destination for Russian crude oil,” where it is refined into oil products that are not subject to sanctions and sold on.

“We have enough evidence that some international companies are buying refinery products made from Russian oil and selling them on to Europe,” said Ustenko, the Zelenskyy adviser. “It’s completely legal, but completely immoral. Just because it’s allowed doesn’t mean we don’t need to do anything about it.”

On Monday, British NGO Global Witness released a report that found Russian pipeline oil, which is not subject to an outright embargo, has consistently been sold at prices far exceeding the $60 cap imposed by G7 countries in December last year.

"The fact Russian oil continues to flow round the world is a feature, not a bug, of Western sanctions," said Mai Rosner, a campaigner who worked on the report. "Governments offered the fossil fuel industry a wide-open back door, and commodity traders and big oil companies are exploiting these loopholes to continue business as usual."

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