Loopholes undermine sanctions: the Russian Shipping Forecast

Western efforts to contain Russia’s oil may finally be paying off. High commodity prices mean Putin’s revenues remain high – but his crude exports have been falling for 5 consecutive weeks, down 13%.

Despite this progress, Global Witness research has exposed loopholes which will allow Russian oil to flow through Western economies into 2023 and beyond – without breaking any laws.

If governments don't shore up their leaky sanctions regimes, we can expect the Kremlin and its enablers in the oil and gas industry to increasingly exploit these weaknesses. Taken together, they represent an open invitation to Putin to continue exporting Russia’s blood oil. Governments should quickly move to close these loopholes.  

The blending loophole

We’ve revealed that millions of barrels of blended Russian oil are set to be shipped to the UK in the coming months, a trade that is likely to continue even after the UK’s ban on Russian oil comes in later this year.

This is possible because of carveouts in the UK and US rules which allow companies to import CPC Blend, crude oil that is a mixture of Kazakh and Russian products, transported via the Caspian pipeline. Since the invasion, at least five million barrels of CPC Blend oil have been shipped to a refinery at Fawley, near Southampton, owned by the American oil major ExxonMobil.

When questioned, ExxonMobil told us it supported the international efforts to bring Russia’s unprovoked attack to an end, and complied with all sanctions. He said: “Since the invasion, there have been no deliveries of crude with a certificate of origin issued in Russia to our refinery at Fawley, and none are scheduled.” The company declined to comment on whether it would continue to accept oil of Russian origin, even if it was part of a mix certified overall as being from Kazakhstan.

Buying Russian oil, even if it is blended with other products, still contributes to Putin’s budget.

Refining the sanctions away

Elsewhere, we revealed another generous loophole being exploited by traders. A global laundering operation sees Russian crude taken to refineries, and then imported directly into the United States as gasoline, all with the explicit approval of U.S. authorities.

Once that oil has been refined into other products such as gasoline, the US officially doesn’t care if it came from Russian wells. Since the invasion, India has been especially swift to dial up imports of Russian crude. In its first fiscal quarter of 2022, the country imported about 682,000 barrels per day, compared with 22,500 barrels per day in the same period of 2021.

Much of this was unloaded at Jamnagar port, in western India, a major refining hub. In June this year, more than a fifth of the port’s imports of crude and fuel oil came from Russia. The same month, India exported 2.7 million barrels of refined fuels to the United States on seven different ships. Five of those loaded in Jamnagar.

Europe undermining its own sanctions

Our recent investigation with the Independent showed how U.K. rules allow British firms to help traders obscure the origin of Russian oil, with vast amounts of it being transferred from tanker to tanker, with the help of British firms, off the Suffolk coast before being shipped on to refineries around the world.

Again, buying Russian oil, even if it is first refined in another country, still contributes to Putin’s budget.

The Kremlin has been testing Western resolve on sanctions since the day they came in. In recent weeks, they have been using a series of ‘maintenance and repair’ manoeuvres to force Germany to weaken the Western sanctions regime – and Berlin is going along with it, as Global Witness set out.

Export technology bans are designed to cripple Russia’s ability to extract fossil fuels in the long run. They work because Western investment and technologies built Russia’s fossil fuel industry. Vladimir Milov, former deputy energy minister under Putin in 2002, says major projects like Sakhalin 1 & 2 ‘definitely could not have been done without international involvement’.

That makes the German government’s decision to make a deal with Canada to allow Siemens to export banned technology for the so-called maintenance of Nord Stream 1 even more inexcusable. But this is the bind the Western world is in, desperate to stop funding war crimes and wrecking the planet but still entranced by the fossil fuel industry and thoroughly addicted to Russia’s blood oil.

It is this dependence that allows Putin to weaponise gas flows, and wage war in Ukraine. Only by ending that dependence can we end the war. Governments must act quickly to close these loopholes.