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‘Latvian blend’: How Russia bends the rules to keep its oil flowing

The Telegraph

‘Latvian blend’: How Russia bends the rules to keep its oil flowing

There is a growing gap between rhetoric and reality on the vast trade of Russian oil

Shell provoked upset less than two weeks into Putin’s invasion of Ukraine as it snapped up a cargo of steeply discounted Russian oil, putting it on course for hefty profits in markets roiled by the disruption.

Dmytro Kuleba, Ukraine’s foreign minister, criticised the company on Twitter, demanding that multinational companies “cut all business ties with Russia.”

The FTSE 100 oil and gas giant was quick to apologise, saying the “difficult decision” was necessary to avoid supply disruptions, and promising to put any profits from trading Russian oil into a fund to help Ukraine.

It also pledged to stop buying Russian crude oil on the spot market and start withdrawing from its petroleum products as part of its wider pullback from the country, stressing this would be a “complex challenge”.

More than a month later, the company has once again provoked Ukraine’s anger, however, as the limits and complexities of that strategy start to emerge. It points to how Russian crude oil has been kept flowing.

According to reports, Shell’s terms indicate it is accepting refined products such as diesel or naphtha with some Russian content, as long as this does not exceed 50pc.

“The goods sold and delivered by Seller shall not be of Russian Federation (‘RF’) origin and shall not have been loaded in or transported from RF,” the terms state, according to Bloomberg.

“Goods shall be deemed of ‘RF origin’ if produced in RF or if 50pc or more of their content (by volume) consists of material that was produced in RF.”

The approach was criticised in a letter from Ukrainian economic advisor Oleg Ustenko to Shell’s boss Ben van Beurden on April 13.

“The notion that any company will continue to bankroll Putin’s war machine through an accounting trick is deplorable,” Ustenko wrote, according to the Wall Street Journal (WSJ).

“It’s a national shame for many governments and institutions that are financing these aggressions towards us.”

It comes as experts point to a growing gap between rhetoric and reality on the vast trade of Russian oil to Europe and elsewhere.

Energy imports have largely been exempted from EU sanctions due to the continent’s dependence, but many companies have publicly disavowed its products amid ethical concerns about funding Moscow’s war or for fear of getting caught in the limited sanctions.

Some banks are also believed to be pulling back from financing such deals. A Goldman Sachs source says the bank had not struck any new deals to finance commodity trading houses’ purchases of Russian producers’ goods since the war began, and did not currently plan to. JP Morgan declined to comment, as did HSBC.

The International Energy Agency warned in March that such “self-sanctioning” was set to help trigger a global supply shock by potentially pushing about 3m barrels of Russian oil per day off the market from April.

Yet exports of Russian oil have remained more robust than expected. One thing that has changed, experts suggest, is the ability to track its products back to Russia once it has made its way around the world.

The number of oil tankers leaving Russia with no fixed destination has risen, the WSJ reported, suggesting that the oil may be being taken for blending with other ships’ cargoes, to obscure its origin – an approach historically used to bypass restrictions on other countries’ oil.

A ship off the coast of Gibraltar last week received three loads of oil from tankers that had come from Russia, and is now on its way to the Netherlands, the WSJ added.

Bloomberg has also highlighted the emergence of a so-called “Latvian blend” diesel, which is shorthand by traders for a mix of Russian and other products, named after a port in Latvia where many such blends are made.

Industry sources say separating Russian products from others can be complex even when there’s no intent to hide the origin, however, with fuels from several countries sometimes stored together or blended for other reasons.

The IEA this month tempered its warnings on Russian supply, now expecting it to fall by about 1.4m barrels a day in April, and not accelerating to three million barrels per day until May. The growing trade in “Latvian crude” may surprise it again next month.

A Shell spokesman said: “Since Shell announced its plan to withdraw from Russian hydrocarbons on March 8, we have not bought products exported from Russia for blending to be sold on as ‘non-Russian.’

“We have stopped all spot purchases of Russian crude and LNG, and eliminated the vast majority of spot purchases of refined products that may contain a proportion of Russian fuel that was blended in further up the supply chain. Our priority is to continue to reduce all of these volumes as quickly as possible.”

The company added its “self-imposed” restrictions go “far beyond any European Union measures in place today” and it complies with all sanctions and laws globally.

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