Americans are still using Russian oil and money is 'flowing into the Kremlin’s coffers,' says Ukraine's chief economic advisor

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Tanker ships in Singapore Strait
Vessels anchored at the southern end of the Singapore Strait on September 21, 2021.ROSLAN RAHMAN/AFP via Getty Images
  • Ukraine's chief economic advisor said the US is — perhaps unknowingly — continuing to import Russian oil.

  • In March, the US placed a ban on Russian oil and natural gas due to Putin's invasion of Ukraine.

  • "Western sanctions on Russian fossil fuels are a phantom," the advisor wrote in an op-ed.

Despite the US ban on Russian oil, it's continuing to find its way to American gas stations, said Oleg Ustenko, chief economic advisor to Ukraine President Volodymyr Zelensky.

"Motorists — perhaps without knowing it — are continuing to fill the tanks of their vehicles with petrol of Russian origin," Ustenko said in a Financial Times op-ed Sunday. "In what can only be described as a global laundering operation, Russian crude is taken to foreign refineries and then imported into the US as petrol. Once the oil has been refined into other products, it can legally enter the US without breaking sanctions."

Patrick De Haan, head of petroleum analysis at GasBuddy, says Iran and other countries have made efforts to skirt sanctions "for quite some time," so it's "possible" US oil companies are "unknowingly" buying Russian oil, though he believes it's "probably not a major amount."

"Rogue actors with Russia or intermediates could stand to profit significantly by taking that discounted Russian oil and mixing it with legitimate oil, falsifying records and then sending it to the US," De Haan says.

In response to Russia's invasion of Ukraine, the US banned the import of Russian oil and natural gas in March. The United Kingdom is planning to phase out these imports by the end of the year, with European Union leaders aiming to cut Russian oil and gas by 90% and 67% respectively.

In addition to punishing Russia, Europe is preparing for the possibility that Russia retaliates — cutting off their access to natural gas this upcoming winter. The drop in demand has caused Russian oil to sell at a steep discount — and created an opportunity for bad actors functioning as middlemen in the market.

By buying Russian oil at a discount, misrepresenting it as non-sanctioned oil, and selling it at the market rate, these "nefarious actors" can rake in profits, De Haan said.

Given the seriousness of the US sanctions, De Haan believes US oil companies would "stay as far away from that Russian oil as possible," and that any imports of it would likely be unbeknownst to them. While oil companies could "do better homework" on who they're buying from, there's a "level of trust" inherent in most oil transactions, making this challenging.

"It's really hard," De Haan says. "It's like buying a used car and hoping you're not going to get a lemon," adding that the "mixed" product would be indistinguishable from what the companies ordered.

While De Hann says Russian actors could be involved in this practice, he believes it's the middlemen that are more likely to take this risk — and be able to pull it off without attracting much notice.

"Western sanctions on Russian fossil fuels are a phantom" 

US gas prices have fallen over the past month, driven by a myriad of factors, including fears of an economic downturn, Americans cutting back, and the release of oil from reserves.

Ukraine's Ustenko suggests that the recent easing of global oil prices is — at least in part — due to Russian oil finding its way to markets like the US.

"Western sanctions on Russian fossil fuels are a phantom," Ustenko said in the Financial Times op-ed. "The revenues flowing into the Kremlin's coffers from foreign sales of oil, gas and coal are sky-high, having doubled in the first 100 days of the war. The west's energy sanctions regime is not working. That is for a very simple reason — it does not exist."

As sanctions on Russian energy have heightened over the past six months, there's been an increase in "dark" ship-to-ship transfers — in which one vessel has turned off its tracking signal. This allows some in the market to operate in secrecy. It's enabled buyers and sellers eager to avoid the ire of the US and Europe to deal in Russian oil without detection. Ustenko's claims of a "global laundering operation," if true, represent a different example of secrecy in the market.

De Haan, however, believes the fact that Russian oil continues to be significantly discounted provides evidence that sanctions are making an impact, and that Russian oil isn't skirting import restrictions at any significant scale. That said, Russia has found some willing buyers in India and China, which has helped offset the decline in sales to Western countries.

Moving forward, Ustenko believes that a "complete and immediate embargo on Russian fossil fuels" and a global price cap on Russian oil are both essential.

"The sooner Putin is stopped, the faster we can get on with Ukraine's reconstruction. That means keeping Russian fossil fuels in the ground and turning phantom energy sanctions into real ones."

But even if the US and Europe take more steps to cut off Russia, some of its oil may continue to slip through the cracks.

"We don't live in a perfect world," says De Haan, "and there are going to be instances where nefarious actors do this type of thing."

Read the original article on Business Insider