- Top Western commodity traders like Vitol, Trafigura, Gunvor, and Mercuria say they’re ready to resume Russian oil trading.
- Russia has entrenched itself in Asian markets, using shadow fleets and intermediaries to sell discounted crude to China and India.
- Fragmented sanctions on Russian crude could make a comeback of Russian barrels difficult.
The world’s biggest independent commodity traders will return to trading Russian energy if sanctions are relieved enough to allow it. But this could take years as any relief would be gradual and slow, the top executives of the major international trading houses said this week.
The U.S. is considering some sanctions relief as the Trump Administration started engaging with Russia and Ukraine to broker an end to the war.
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Amid uncertainties about the talks on a ceasefire, it is not clear if or when any significant sanctions relief would come for Russia’s energy exports.
What is certain is that the top Western trading houses are ready to return to the business of handling and selling Russian oil, sanctions relief permitting. The bosses of the trading giants said as much at the FT Commodities Global Summit in Lausanne, Switzerland, this week.
Vitol Group, Trafigura, Gunvor, and Mercuria were the main traders of Russian oil on the international markets before the Russian invasion of Ukraine in 2022.
All these ditched the handling of any Russian oil after the U.S., the EU, the UK, and the G7 imposed a series of sanctions on Russian oil exports.
Related: India Turns Away Russian Oil Tanker As Sanctions Evolve
The G7, supported by other Western allies, also set a price cap mechanism for Russian crude shipments. These can go to third countries and are allowed to use Western insurance and financing if cargoes are sold at or below a $60-a-barrel ceiling. The measure took effect at the end of 2022 when the EU imposed an embargo on imports of Russian crude oil. At that time, the U.S. and the UK had already banned imports of Russia’s oil.
Traders Cautious But Considering Russian Oil If Sanctions Ease
The top Western traders will be extremely cautious in potential Russian trades, if sanction relief allows it at some point. But they would consider returning to trade Russian energy if sanctions are eased, the top executives of the trading houses said.
“If sanctions are eased in a way that we can go back in, why wouldn’t we? It’s our job,” Torbjörn Törnqvist, chief executive officer at Gunvor Group, told Bloomberg in an interview.
“We don’t do anything today because we think even though there are some gray zones, we just don’t do it. But if these are removed, why wouldn’t we?” Törnqvist added.
Marco Dunand, CEO at Mercuria, told the FT Commodities Global Summit that “As a company we are a bit more shy when it comes to sanctions, but if sanctions were lifted we would absolutely consider if we could bring value and go back.”
“I think if the sanctions are lifted we would go back to Russia and see if we have a role to play in the commodities sector,” Dunand said.
According to Trafigura’s chief executive Richard Holtum, the return of Russian oil and the legit traders to this trade would be complicated if the U.S. eases sanctions first, while the UK and the EU allow sanctions relief at a later stage.
This would likely take many months, during which the addition of Russian oil to the global market wouldn’t be so material as to tip by itself the market balance into a glut.
“You would need to see a wholesale winding back of all the sanctions before it’s something that could even be considered,” Trafigura’s Holtum says.
Vitol’s chief executive, Russell Hardy, says the world’s largest independent oil trader believes that “it’s going to be a year or two” before Europe eases sanctions.
Russia Conquering Asian Markets
Any return of Russia’s oil to Western traders and markets will likely be different from the pre-war state of affairs. Russia has already amassed a network of traders, intermediaries, and shadow fleet tankers to ship its oil to the two biggest Asian markets—China and India.
Russia may not revert back to long-term contracts with oil trading houses to handle its oil even after a potential easing of the sanctions to allow this type of deals, according to Gunvor’s Törnqvist.
Even after the most aggressive U.S. sanctions on Russia’s oil exports from January, it took just two months for the Russian-Indian oil trade to readjust flows.
Indian imports of crude oil from Russia appear to be rebounding in March following lower purchases earlier this year in the immediate aftermath of the U.S. sanctions on Russia’s oil trade.
Traders have booked more non-sanctioned tankers to deliver crude to India, while the price of Russia’s flagship Urals grade has dropped to below the $60 per barrel price cap by the G7, allowing shipments involving Western companies, Reuters reported earlier this month, citing ship-tracking data and trading sources. Daily rates for non-sanctioned tankers on the western Russia to India route have spiked to the highest in a year, incentivizing more shippers to offer such cargoes.
China has also found workarounds to continue importing Russian oil. While state oil firms in China either halt or reduce Russian oil volumes, at least for now, the independent refiners in China are picking up the slack.
By Tsvetana Paraskova for Oilprice.com
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