Moscow June 2 2022: Russian Oil Producers Stay One Step Ahead of Sanctions Shippers and refiners hide origin of Russian oil, and some is getting into the U.S.
Russian oil exports rebounded in April, although sanctions spurred by Russia’s invasion of Ukraine were still in effect.
Europe just targeted Russian crude with its toughest sanctions yet, but shippers and refiners are getting the oil to market by obscuring its origins. Some fuels believed to be partially made from Russian crude landed in New York and New Jersey last month.
The cargoes were brought through the Suez Canal and across the Atlantic from Indian refineries, which have been big buyers of Russian oil, according to shipping records, Refinitiv data and analysis by Helsinki-based think tank Centre for Research on Energy and Clean Air.
In the wake of the invasion of Ukraine and sanctions from the U.S. and the European Union, traders are working to obscure the origins of Russian oil to keep it flowing. The oil is being concealed in blended refined products such as gasoline, diesel and chemicals.
Oil is also being transferred between ships at sea, a page out of the playbook used to buy and sell sanctioned Iranian and Venezuelan oil. The transfers are happening in the Mediterranean, off the coast of West Africa and the Black Sea, with oil then heading toward China, India and Western Europe, according to shipping companies.
European Union leaders agreed Tuesday to impose a phased ban on most Russian oil, eventually cutting off the Kremlin from its biggest energy buyer. They also are expected to ban European insurers from covering ships carrying Russian oil. But workarounds to evade sanctions are already under way and threaten to lower the efficacy of these restrictions.
The U.S. embargo from March prohibits imports of crude, petroleum products, liquefied-natural gas and coal from Russia, but fuels are often made from blends of different products such as diesel.
The U.S. Office of Foreign Assets Control typically defines origin using 25% or more as a rule of thumb, according to trade lawyers. It excludes goods that have been substantially transformed into another foreign-made product. Whether refining crude oil into products like gasoline or diesel counts for this exclusion hasn’t been made clear by OFAC, according to lawyers at three different firms.
Overall, Russian oil exports rebounded in April, after dropping in March as the first Western sanctions took effect, the International Energy Agency said. Russia’s oil exports rose by 620,000 barrels to 8.1 million barrels a day, close to its prewar levels, with the biggest increase going to India.
India has emerged as a key hub for Russian oil flows. The country’s imports have skyrocketed to 800,000 barrels a day since the war began, compared with 30,000 barrels a day previously, according to commodity-markets data company Kpler.
That is likely because of the deep discount—a popular grade of Russian crude known as Urals is priced at around $35 below Brent. It previously traded largely in line with the benchmark.
A refinery owned by Indian energy giant Reliance Industries Ltd. bought seven times more Russian crude in May, compared with prewar levels, making up a fifth of its total intake, according to Kpler.
Reliance chartered an oil tanker to carry a cargo of alkylate, a gasoline component, departing from the nearby Sikka port on April 21 without a planned destination. Three days later, it updated its records with a U.S. port and sailed over, discharging its cargo on May 22 in New York.
What likely happened was Reliance took on a discounted cargo of Russian crude, refined it and then sold the product on the short-term market where it found a U.S. buyer,” said Lauri Myllyvirta, lead an…
