Russian Crude Trade Moves Deep Into the Shadows

Russia has continued to export almost as much seaborne crude since the imposition of an EU embargo in early December, but with major changes emerging in the structure of that trade.

Russia's seaborne exports averaged 3.1 million barrels per day in December to mid-January, down by 150,000 b/d or about 5% from the average in January-November of last year — even after losing most of Europe as a market due to the EU's Dec. 5 import embargo.

However, exports are increasingly handled by a new group of obscure traders using non-Western tankers. Details of the trade have also become obscure as both shipping and trade move into the shadows.

The embargo was accompanied by a G7 price cap on Russian crude, which aimed to keep oil flowing to other countries in the face of parallel sanctions on the provision of shipping services.

According to port data, Russia has ramped up shipments of crude oil to China and India to record levels this month.

China is on course to receive around 950,000 b/d of East Siberia-Pacific Ocean blend crude shipped from Russia's Far East port of Kozmino, a jump of more than 15% compared to December, and is also taking the occasional cargo of Urals blend.

China has also seen a surge in crude imports from Malaysia, some of which is thought to consist of sanctioned crudes from Russia, Iran or Venezuela.

India is vacuuming up even more Urals crude than before, and its refiners have also started taking Russian Arctic crude shipped from Murmansk that had previously been going to the EU.

In all, India has imported about 1.4 million b/d since the start of December, according to data from ship tracker Kpler and Energy Intelligence. This compares with an average of 800,000 b/d in 2022 and just 50,000 b/d before the war in Ukraine.

Scant Details

Details of Russian trade have become increasingly difficult to monitor, however, as transparency around shipments continues to deteriorate.

Most of the ships transporting Russian crude are either Russian-owned — by state-controlled carrier Sovcomflot and its Dubai-based subsidiary Sun Ship Management — or belong to a "shadow fleet" of dozens of often-aging tankers that are believed to be controlled by Russian-backed interests.

Added to the mix are some Turkish and Indian-owned tankers. China's giant state shipper Cosco stopped providing tankers when the price cap came into force.

Many of the ships carrying Russian crude are chartered by obscure trading firms, often domiciled in Dubai and with no prior footprint in Russia.

Some of these firms, such as Tejarinaft, Sunrise, Bellatrix and Samaria, have been lifting Russian crude for several months, usually on behalf of state-controlled giant Rosneft.

But in recent weeks new players such as Elbrus General Trading, Petroruss and Arida have appeared as lifters and are buying from other Russian producers.

"You will see more of these strange companies appearing, it's inevitable," says a source who monitors Russian shipments closely.

Such firms could account for as much as 2 million b/d of Russian seaborne exports, according to Energy Intelligence analysis of loading data.

There are scant details on the commercial terms of these trades. Trading sources say deals are probably done mostly on open credit, rather than the usual method of opening up a letter of credit (LCs) with an international bank.

"For a commercial bank to provide an LC for a Russian crude cargo, they would need to see documentation that the price cap was applied," another trader says.

These new under-the-radar trading firms have replaced traditional players such as Vitol, Gunvor and Trafigura, which stopped buying Russian crude months ago.

They may soon stop buying Russian products as well, as an EU embargo on imports of products takes effect Feb. 5.

There is little evidence of the G7 price cap being applied to any crude shipments, with most trade appearing to be taking place outside the mechanism and making use of non-Western vessels.

But with the introduction of the embargo and the accompanying price cap, Russia has been forced to sell Urals crude at heavy discounts to benchmark Brent of up to $40 per barrel, compared with $20 previously, in a bid to attract new buyers.

With Brent recently trading in the mid-$80s per barrel, however, that means Urals is still trading comfortably below the $60 level of the G7 price cap.

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