Insight: Obscure traders ship half Russia's oil exports to India, China after sanctions

Orion Energy Systems

27/07/2023 13:00

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      This content was produced in Russia, where the law
restricts
coverage of Russian military operations in Ukraine
    

  
    By Dmitry Zhdannikov and Nidhi Verma
       MOSCOW/LONDON/NEW DELHI, July 27 (Reuters) - A
Liberian-flagged oil tanker set sail in May from Russia's
Ust-Luga port carrying crude on behalf of a little-known trading
company based in Hong Kong. Before the ship had even reached its
destination in India, the cargo changed hands.    
    The new owner of the 100,000 tonnes of Urals crude carried
on the Leopard I was a similarly low-profile outfit, Guron
Trading, also based in Hong Kong, according to two trading
sources. 
    The number of little-known trading firms relied on by Moscow
to export large volumes of crude exports to Asia has mushroomed
in recent months, since sanctions over the Ukraine war led major
oil firms and commodity houses to withdraw from business with
producers in Russia, reporting by Reuters has found.
     At least 40 middlemen, including companies with no prior
record of involvement in the business, handled Russian oil
trading between March and June, according to a Reuters tally
after speaking to 10 trading sources, along with analysts from
think-tank Kpler, and analysing data from Refinitiv and the
non-public books of shipping companies.
    The new players have shipped at least half of Russia’s
overall crude and refined products exports of 6-8 million
barrels per day (bpd) on average this year, turning the
little-known companies collectively into some of the world's
largest oil traders, according to Reuters calculations based on
private information from the 10 trading sources and Eikon data.
    The companies began appearing after Russia's February 2022
invasion of Ukraine, which Moscow calls a special military
operation, with as many as 30 middlemen involved in trades over
the course of last year, according to the tally.
    The network marks a major departure from the handful of
well-established oil majors such as BP and Shell and top trading
houses including Vitol, Glencore, Trafigura and Gunvor that
handled Russian crude and oil products for decades.
    There is no suggestion the trades break sanctions, although
they may make it difficult for sanctions enforcement agencies in
Europe and the United States to track Russian oil transactions
and prices.
    Earlier this month, Urals prices jumped above a price cap of
$60 a barrel on Russian exports imposed by the Group of Seven
nations, Australia and the European Union from Dec. 5 that was
intended to punish firms involved in any trade above that level.
    When prices are above the cap, the rapidly changing trading
network could make it hard to identify those involved in moving
the oil, five traders involved in handling Russian oil said.
    The reporting shows that in May, Russia, one of the world's
top three oil producers, supplied record volumes to China and
India, which have not imposed sanctions on Moscow and became its
leading buyers after sanctions by Europe, the United States and
other powers limited their own purchases.
    Neither Guron Trading or Bellatrix Energy, the company that
originally chartered the Leopard I and bought the cargo from
Russian oil company Rosneft, responded to requests for comment.
Rosneft did not respond to questions.
    The websites for Guron Trading and Bellatrix Energy appeared
to have been taken down recently. Both were online prior to the
companies being contacted by Reuters. 
    
    TRADING AT SEA
    Along with the emergence of the new companies, once rare
multiple trades while ships are at sea have become widespread,
the five sources involved in Russian oil trading said. The
sources described at least 10 such trades, which happen with
little public documentation and aim to make Russia's oil exports
more difficult to track, they said.
    One buyer of Russian oil likened the rise and fall of the
new traders to the brief careers of TikTok stars, while another
trader described a "kaleidoscope" of new players. In some cases,
a single cargo will pass through at least three traders, the oil
buyer said. 
    Under the previous system, oil cargoes were generally
handled by one well-known trader from source to destination.
    Reuters could not establish the ultimate owners of the new
trading companies.
    The growing network of pop-up traders overlaps with a
booming market for old oil tankers supplied by new companies to
carry Russian oil that Western shippers are avoiding.
    The new trading network and practices raise financial risks
for Russian oil companies dealing with unknown entities with
limited credit history. 
    Some of the companies that emerged as major traders of
Russian oil last year, such as Coral Energy and Everest Energy,
have since exited the business.
    Responding to questions from Reuters, both denied they left
the trade because of sanctions risks. Everest said "it was a
strategic business decision based on various factors specific to
our company". Coral said "we made a decision to source outside
of Russia thanks to the diversified footprint in MENA region'.
    The U.S. Treasury department's sanctions enforcement agency,
OFAC, and its EU and UK counterparts did not respond to requests
for comment for this story.
    In July, a U.S. Treasury official said sanctions were
designed to keep Russian oil in the market, dampening prices for
consumers while limiting oil revenues Moscow uses to finance the
war in Ukraine.
    "We recognise that (sanctions on Russia are) going to change
the shape and structure of the Russian oil markets," the
official told reporters.
    The official also said Washington was unconcerned that
sanctions were resulting in more trades in currencies other than
the dollar - after a rise in the use of yuan and UAE dirham to
settle Russian oil transactions as Moscow finds itself shut out
from international banks. 
            
    MULTI-YEAR EXPORT HIGH
    Owned and operated by the Dubai-based Leopard I Shipping,
the Leopard I arrived at Visakhapatnam port on June 15, where
Indian refiner Hindustan Petroleum took delivery of the cargo
from Guron Trading, data from the two trading sources showed.
    Hindustan Petroleum didn't immediately respond to a request
for comment.
    The emerging companies have played a key role in keeping
Russia's oil exports moving, and even growing, as its leading
crude producers Rosneft, Lukoil, Surgutneftegaz and Gazprom Neft
diverted shipments to India and China.
    Helped by this network, Russian oil exports from all sea
ports reached a multi-year high in April and May at nearly 4
million bpd, according to Reuters calculations based on polling
of 10 traders as well as Russian port loading programmes and
Refinitiv data.
    In May, Russian seaborne oil supplies to India, which was a
rare buyer of Russian oil before the war, reached a record of
1.95 million bpd while China imported 2.29 million bpd.
    Only Lukoil continues to market oil through its trading
division - Litasco - which it relocated to Dubai from Geneva.
The other companies sell to the new trading firms, which are
mostly registered in China, Singapore, Hong Kong or Dubai,
according to the five sources and local public company
registers.
    From March to June, the top traders who bought oil from
Rosneft, Surgutneftegaz and Gazprom Neft included Dubai-based
Petroruss, Hong Kong registered Guron Trading, Bellatrix Energy
and Covart Energy, Dubai-registered Voliton, Demex Trading,
Nestor Trading, Orion Energy and Singapore-headquartered Patera,
according to the five traders, shipping data and company
registers.
    Some companies, such as Voliton, had no websites or contact
numbers that Reuters could find. None of the others responded to
requests for comments.
    Media representatives for Rosneft, Surgutneftegaz and
Gazprom Neft didn't answer Reuters requests for comment.
        
    PAYMENT DELAYS
    The strategy brings risk for Russian producers. Venezuela,
which uses a similar system to move oil, has suffered payment
problems, fraud and losses.
    While there have been no reports to date of non-payment,
delays have caused some problems, the five traders involved in
the Russian oil business said.
    Russian exporters waited between three to five months to get
paid after their cargoes sailed, the sources said. Normally,
buyers pay for the cargoes about a month after the ship sails,
they said. 
    One source said such delays created a fiscal gap for
exporters who were having to pay taxes to the Russian state
before even being paid for their oil.
    A source with one major Russian oil company said his company
was prepared to deal with higher credit risks from buyers for
the sake of having stable and rising oil exports.
    "Last year, we were facing output cuts as marketing was bad.
Now it's alright – we have buyers, we have sales," the source
said.

 (Reporting by Reuters in MOSCOW, Dmitry Zhdannikov in LONDON
and Nidhi Verma in NEW DELHI. Additional reporting by Timothy
Gardner in Washington and Laura Sanicola in New York; Editing by
Simon Webb and Frank Jack Daniel)