The back door that keeps Russian oil flowing into Europe

When is a load of Russian diesel not a load of Russian diesel? The answer is when Shell Plc, Europe’s largest oil company, turns it into what traders call a Latvian mix.

It’s about marketing a cask where only 49.99% is Russian; As long as the other 50.01 percent comes from other sources, Shell does not technically consider the oil cargo to be of Russian origin. The maneuver underpins a burgeoning and opaque market for blended Russian diesel and other refined petroleum products, one of the many of these oils companies and commodity traders are using to keep Russian energy flowing into Europe while gratifying public opinion who want an end to subsidies to Vladimir Putin’s war machine demands.

Since Europe has stopped imposing restrictions or penalties on buying Russian oil, gas or coal, the novel mixture is perfectly legal for sale. If Shell and others followed European rules to the letter, they could buy cargo that was 100 percent Russian. But mixing is a convenient tool for companies to publicly say one thing (phase out Russian molecules) and do another (buy lots of Russian molecules). . In Shell’s case, the company changed the so-called terms and conditions of its contracts to allow for Russian admixture. The new terms read (my emphasis): “It is a condition of this offer, and a condition of any contract resulting from it, that the goods sold and delivered by the seller do not originate in and will not have in the Russian Federation (‘RF’). loaded or transported by RF. Goods are considered ‘RF origin’ if they are manufactured in RF or if 50% or more of their contents (by volume) consists of material manufactured in RF.” In the oil market, traders whisper of a “Latvian mix” – a new origin for diesel that looks like a workaround to deliver Russian product mixed with something else. Typical trade is from Primorsk, a Russian oil exporting city near St. Petersburg, to Ventspils, a port in Latvia that has a large oil terminal and tanking capacity. That is where the mixing takes place. There are many other places where mixes take place, including in the Netherlands, and on the high seas, what traders refer to as ship-to-ship transfers. For many on the market, the Latvian mix is ​​simply an abbreviation for any mix containing Russian molecules, regardless of where the mix took place. The Latvian blend is reminiscent of similar backdoors for trading sanctioned Iranian and Venezuelan crude, which for years was offered in the Far East as a “Malaysian blend” or “Singapore blend.” For Shell, the strategy is not without risk. The company was forced to issue a rare apology last month after its traders bought a single shipment of heavily discounted Russian Ural crude, sparking an outcry that included Ukraine’s foreign minister, who accused the company of profiting from Ukrainian blood .

In a later statement, Shell said it had begun a “phased withdrawal from Russian petroleum products” and announced “that it will immediately stop buying Russian crude on the spot market.” Diesel, others not. France’s TotalEnergies SE dictates that no cargo should come “in whole or in part” from Russia, according to the company’s updated terms and conditions. Repsol SA of Spain has similar rules banning Russian molecules according to their terms and conditions. There are other loopholes – again all legal. For example, the Intercontinental Exchange Inc. allows traders to supply Russian diesel in exchange for their popular European gas oil contract. In a circular on Wednesday, the exchange reminded traders that “products of any origin must be deliverable in the Antwerp, Rotterdam and Amsterdam region”. This allows a dealer to comment on the contract and supply Russian diesel while complying with EU regulations. The loopholes and backdoors are a reminder of why sanctions are difficult to enforce. And when no sanctions are imposed, but actually self-sanctions, it opens the door for companies to do what they see fit. The result? Russia continues to sell its fossil fuels and make money. Europe is also benefiting from a higher supply of diesel and lower energy prices. The moral question awaits its reckoning.

More from the Bloomberg Opinion:

• Germany must cut off Russian gas sooner, not later: Chris Bryant

• The US needs a strategic reserve for green energy: Conor Sen

• EU should buy Americans to sell Russian gas: Liam Denning

This column does not necessarily represent the opinion of the editors or of Bloomberg LP and its owners.

Javier Blas is a Bloomberg Opinion columnist covering energy and commodities. He was previously the commodities editor at the Financial Times and a co-author of The World for Sale: Money, Power, and the Traders Who Barter the Earth’s Resources.

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