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Oil company Shell and energy trader Vitol are facing accusations that they are exploiting a loophole in the EU sanctions regime, which is helping to prolong the war in Ukraine. The two companies have been accused of bringing products derived from Russian oil into Europe via Turkey, thereby boosting Vladimir Putin’s war coffers.
Oleg Ustenko, economic adviser to Ukrainian President Volodymyr Zelenskiy, has called on Shell and Vitol to commit to a deadline to halt the trade of “Russian-origin oil products” to reduce the financial support for the war.
The EU implemented a ban on importing seaborne Russian crude oil on December 5, 2022, the same day as a G7 price cap on Russian seaborne exports. The ban was extended on February 5, 2023, to refined products such as diesel and fuel oil.
However, refineries in India and Turkey have increased their imports from Russia since the start of the war and have been accused of providing a “back door” for Russian oil exports to be refined, re-badged and exported around the world.
According to the non-profit group Global Witness, analysis of data from commodity tracker Kpler shows that Shell imported more than 600,000 barrels of refined products into the Netherlands from Turkish refineries known to import Russian oil since December 5, 2022. While it cannot be proved whether the products were definitely derived from Russian crude, Turkish refineries are importing vast quantities from Russia, which can then be immediately refined or blended with crude from other nations.
The study also showed that in 2022, Turkey imported 143 million barrels of crude from Russia, a 50% increase from 2021. One refinery, Star in Aliaga, on Turkey’s Mediterranean coast, dominated that trade. The refinery is owned by the Turkish division of Azerbaijan’s state oil firm Socar, and it took more than 60 million barrels of crude from Russia in 2022, 73% of its imports. The Izmit and Aliaga refineries, owned by Tüpraş, the largest refinery company in Turkey, also handled Russian-origin crude.
Vitol, the world’s largest independent energy trader, sourced 2.77 million barrels from the Star and Izmit refineries for delivery to Latvia, Cyprus and the Netherlands since the start of the war in Ukraine, the analysis found.
Shell announced its intent to withdraw from its “involvement in all Russian hydrocarbons” in March 2022, shortly after the outbreak of war in Ukraine. However, Ustenko acknowledged in a letter to the new Shell chief executive, Wael Sawan, that Shell had not broken any sanctions but said importing products from Turkish refineries “awash” with Russian oil “flies in the face of Shell’s pledge to withdraw from its involvement in Russian crude oil and petroleum products, and exploits a loophole in the EU sanctions regime”.
Ustenko also warned that if Western companies continued to buy Russian-derived refined products, there would be no incentive for refineries around the world to stop importing Russian crude.
Shell announced record annual profits of £32 billion earlier this month, aided by a spike in commodity prices linked to the war in Ukraine. Vitol said in April 2022 that it “intends to cease trading Russian origin crude oil and product”. However, the company has continued to trade in products refined from Russian crude in Turkey, leading to accusations that it is not living up to its commitment.
According to Global Witness, data shows that the EU imported 5 million barrels of refined products from Turkey since December 5, 2022, and 20 million barrels from refineries that handle Russian oil during 2022.
The accusations against Shell and Vitol have sparked a controversy that has renewed calls for stricter regulations and monitoring of companies involved in the trade of refined products derived from Russian crude oil. The EU sanctions regime was introduced in 2014 in response to Russia’s annexation of Crimea and its support for separatists in eastern Ukraine.
The aim of the sanctions is to put pressure on Russia by reducing its access to international markets, including the energy sector. However, the trade of refined products through third-party countries has undermined these efforts, allowing Russian oil to continue to flow into Europe and other parts of the world.
Critics argue that Shell and Vitol’s actions are prolonging the conflict in Ukraine by providing financial support to Russia, which is using the funds to fund its military operations in the region. They are calling on the EU to take more robust action to enforce its sanctions regime and prevent companies from exploiting loopholes to circumvent the ban on Russian crude oil.
In response to the accusations, both Shell and Vitol have denied any wrongdoing and have insisted that they are fully compliant with EU sanctions. Shell has said that it is committed to withdrawing from its involvement in Russian hydrocarbons, while Vitol has stated that it intends to cease trading Russian-origin crude oil and products.
However, the evidence presented by Global Witness suggests that both companies have continued to trade in refined products derived from Russian crude, either directly or indirectly. This has raised concerns about the effectiveness of the EU sanctions regime and the need for greater transparency and accountability in the energy sector.
The controversy over Shell and Vitol’s activities highlights the complex and opaque nature of the global energy trade, which is dominated by a handful of powerful companies that operate across multiple jurisdictions and often face little scrutiny or regulation. Critics argue that this lack of transparency and accountability enables companies to engage in unethical and illegal practices, such as exploiting loopholes in sanctions regimes, and undermines efforts to address global challenges such as climate change and geopolitical conflict.
To address these concerns, there have been calls for greater transparency and accountability in the energy sector, including the adoption of mandatory disclosure requirements for companies involved in the trade of oil and gas. Some experts have also called for the establishment of an international body to monitor and regulate the energy trade, similar to the role played by the World Trade Organization in overseeing international trade.