Russia Shrugs Off Latest European Sanctions

Russia is shrugging off the EU's sixth round of sanctions, suggesting that it will find workarounds to keep up its oil exports and that the measures will hurt EU countries by pushing up prices and causing shortages of diesel fuel.

However, oil market insiders say the ratcheting up of international sanctions in protest at the war in Ukraine will present significant challenges to Russian oil producers.

Former President Dmitry Medvedev — who is now deputy chair of Russia's Security Council — posted on Twitter that the EU's ban on imports of crude oil and refined products will leave the 27-nation bloc short of diesel.

Europe is far from self-sufficient in diesel and imported around 500,000 barrels per day from Russia in April.

Medvedev added that Europe will have to find "grey schemes" — workarounds that allow it to continue importing Russian energy indirectly or covertly.

That could include, for example, imports of diesel from India, which has ramped up its imports of deeply discounted Russian crude oil and is an established exporter of refined products.

In addition to banning imports of Russian oil — with an exemption for pipeline imports for Hungary and other small, landlocked countries — the EU has also banned insurance and financing of Russian oil exports to third countries.

But Medvedev suggested that this problem could be resolved via financial guarantees under government-to-government agreements with countries that are still willing to buy Russian oil, such as China and India.

Market players agree that Russian companies will probably find ways to adjust to US and European financial sanctions, but add that this will take time.

The London-based International Group of P&I Clubs has refused to insure tankers carrying Russian crude or refined oil products, and that is a major obstacle because it provides insurance coverage for some 90% of the world's ocean-going freight capacity.

In a sign that former Soviet republics are concerned that oil they ship via Russian ports may be mistaken for sanctioned Russian barrels, reports indicate that Kazakh producers are renaming their crude Kazakhstan export blend crude oil, Kebco, to distinguish it from Russian export blend crude oil, known as Rebco.

Meanwhile, the trade in Russian oil has been getting progressively "darker" and more difficult to track.

Market players expect Russia to put more of its crude into floating storage — much as Iran has done in recent years — and then do multiple ship-to-ship transfers to disguise the true origin of its oil.