How Russia can 'evade' EU oil sanctions in the 6th package

A Russian oil tanker. Photo: DW

As the US and EU ramp up sanctions, Russia is finding more ways to avoid the blockade. This week, the EU imposed its harshest sanctions yet on Russia, targeting oil and insurance, but with exemptions for Hungary.

Specifically, officials and diplomats said the EU would ban oil imports from the country and block insurers from transporting its crude as the West seeks to restrict the Kremlin's revenue to keep the economy running.

In particular, the ban on insurers would cover Russian tankers anywhere in the world. These sanctions could reduce Russia’s efforts to sell oil in Asia, while helping European companies secure the bulk of the world’s oil trade.

But these sanctions may be ineffective, because shippers and refiners are likely to conceal the origin of Russian oil.

The Wall Street Journal explains that amid the conflict in Ukraine and sanctions from the US and EU, traders are looking to disguise the origin of Russian oil to keep it flowing. The oil is being hidden in blended refined products such as gasoline, diesel and chemicals.

Oil is also being transferred between ships at sea, a method used to buy and sell sanctioned oil from Iran and Venezuela. The shipments are taking place in the Mediterranean, off the coast of West Africa and the Black Sea, ultimately heading to China, India and Western Europe, according to shipping companies.

Overall, Russian oil exports recovered in April after falling in March, when the first Western sanctions took effect, the International Energy Agency said. Russian oil exports rose by 620,000 barrels per day to 8.1 million barrels per day, close to pre-conflict levels, with the biggest increase coming from imports to India.

In fact, Russia's oil production in May rose 5% from April to 43.1 million tonnes. This is equivalent to 10.19 million barrels per day. In the January-May period, Russia's oil production increased 3.5% year-on-year to 219.9 million tonnes, while oil exports increased 13% to 102.7 million tonnes.

India has emerged as a major hub for Russian oil flows, with imports soaring to 800,000 barrels per day since Russia launched its military campaign in Ukraine, up from 30,000 barrels per day previously, according to commodity market data firm Kpler.

Kpler, a refinery owned by Indian energy giant Reliance Industries, bought seven times more Russian crude in May than before the conflict, accounting for a fifth of its total consumption.

Reliance chartered a tanker to carry a cargo of alkylate, a gasoline ingredient, from the nearby port of Sikka on April 21 without a destination. Three days later, the ship updated its records to call at a U.S. port, announcing it would unload its cargo on May 22 in New York.

“It appears that there is a trade where Russian crude is refined in India and then some of it is sold to the US,” said Lauri Myllyvirta, chief analyst at the Center for Energy and Clean Air Research, which tracks Russian fossil fuel exports.

To avoid huge insurance costs, the ships turn off their GPS systems and then transfer the oil to supertankers like the Lauren II, a giant Chinese crude carrier that can hold about 2 million barrels of oil.

In short, as long as India and China do not implement sanctions, Russian oil will continue to flow into the world market. More ships are used to transport oil from Russia to India and China than from Russia to the EU. In turn, the EU imports oil from Saudi Arabia instead of Russia./.