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bne IntelliNews – KSE: Russian Oil Trading (ROT) – revenue down despite higher volumes

According to the June report of the Russian Oil Tracker by the KSE Institute, in May 2024, Russian oil export revenues fell to $16.8 billion, despite higher export volumes. Increased export volumes and active use of the shadow fleet did not compensate for lower oil prices.

Russian seaborne oil exports rose 4%, driven by a 17% MoM increase in oil product exports following the reconstruction of refineries following the Ukrainian drone attacks in January-April. Only 12% of crude oil and 62% of oil products were shipped with IG P&I insurance. In May 2024, IG-insured tankers did not ship crude oil from Pacific ports for the first time.

For other shipments, Russia is actively using the shadow fleet. The KSE Institute estimates that 220 loaded Russian shadow tankers have left Russian ports, 3 of which were involved in STS transfers in May 2024. Interestingly, 83% of these vessels were over 15 years old. Using these aging vessels not only allows Russia to break the oil price ceiling and increase profits, but also creates significant environmental risks in the event of an oil spill at sea.

India, China and Turkey accounted for 95% of Russia’s oil exports in May, supporting demand for Russian crude. India, the largest importer, cut its seaborne oil imports by 13% to 1,812 kb/d. Turkey, the largest buyer of oil products, saw its imports fall 11% month-on-month. However, it remained the third-largest importer of crude, up 42% or 120 kb/d month-on-month.

The U.S. Treasury designation of individual vessels has resulted in the removal of most shadow tankers from regular commercial service. As of June 12, 2024, of the 41 sanctioned vessels, 34 were idle and not on any scheduled voyages. The remaining vessels have completed or partially completed voyages carrying Russian or non-Russian crude oil, demonstrating Russia’s efforts to return the OFAC-sanctioned tankers to commercial service. The lifting of commercial cargo by the sanctioned vessels could undermine the overall effectiveness of the U.S. Treasury designations if secondary sanctions are not imposed on all participants involved with Russian crude oil carried by these tankers.

Despite EU/G7 sanctions, new tankers are arriving in Russia every month to export oil. In May, 14 new tankers were loaded in Russian ports that did not carry Russian oil from January 2023 to April 2024. Six of them belong to the shadow fleet, while 2 are transporting Venezuelan oil in 2022-2023. The remaining 8 belong to the legal fleet: 5 operated by EU/G7 companies and 3 by non-EU/G7 companies but with IG P&I insurance.

In addition, Russia uses sanctions evasion strategies such as Ship-to-Ship (STS) transfers to conceal the origin of the oil, using Very Large Crude Carriers (VLCCs). Between December 2023 and May 2024, Russia used 14 VLCC tankers for STS operations; 13 carried Iranian or Venezuelan crude oil between 2022 and 2024, with only 2 having IG P&I insurance. In June, Russia used 2 Emirates tankers and 1 Chinese tanker without IG P&I insurance to transship crude oil to the Vietnamese VLCC Rolin, also without IG P&I insurance.

Active use of shadow fleet and avoidance of sanctions allows Russia to bypass oil price limits. In May 2024, Urals FOB Primorsk and Novorossiysk prices fell by $7.6/bbl but remained ~$5/bbl above the limit. Urals discount to Brent decreased by $0.5/bbl and ESPO by $2.6/bbl compared to the previous month.

KSE Institute projects Russian oil revenues to reach $177 billion and $141 billion in 2024 and 2025, respectively, in a base case with current oil price caps and stronger sanctions enforcement. However, if sanctions enforcement is weak, Russian oil revenues could increase to $198 billion in 2024 and $186 billion in 2025.

We propose three countermeasures to address Russia’s evasion of oil export sanctions:

1. The G7/EU should ensure compliance with the price cap by leveraging financial institutions’ knowledge of transactions, requiring reputable credentials and increasing evidentiary documentation requirements.

2. EU coastal states should exploit geographic choke points to curb Russia’s shadow fleet by requiring adequate spill insurance for tankers in their waters.

3. Price Control Coalition countries should strengthen penalties for violations, imposing harsher fines and longer bans on G7/EU companies and imposing direct or secondary sanctions on third-country entities.

Read the full report here.

Russian export of crude oil and petroleum products by sea KSE

Russian exports of crude oil and petroleum products by sea by KSE countries

Kyiv School of Economics (KSE) is a bne IntelliNews media partner and a leading source of economic analysis and information about Ukraine. This content originally appeared on the KSE website.