How Russia Avoids Oil Sanctions: Transfer at Sea to “Destination Unknown”

April 21, 2022

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4:30 pm

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46 comments

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Economics

Average daily crude exports from Tanker Tracker via WSJ

Under the Radar

Please consider Russian Oil Flows, but Increasingly Under the Radar.

Oil exports from Russian ports bound for European Union member states, which historically have been the biggest buyers of Russian crude, have risen to an average of 1.6 million barrels a day so far in April, according to TankerTrackers.com. Exports had dropped to 1.3 million a day in March following the Ukraine invasion. Similar data from Kpler, another commodities data provider, showed flows rose to 1.3 million a day in April from 1 million in mid-March.

Oil from Russian ports is increasingly being shipped with its destination unknown. In April so far, over 11.1 million barrels were loaded into tankers without a planned route, more than to any country, according to TankerTrackers.com. That is up from almost none before the invasion.

The use of the destination unknown label is a sign that the oil is being taken to larger ships at sea and unloaded, analysts and traders said. Russian crude is then mixed with the ship’s cargo, blurring where it came from. This is an old practice that has enabled exports from sanctioned countries such as Iran and Venezuela.

Appearances vs Reality

This is yet another look at how sanctions don’t work. The oil gest through, but the added costs drive up the costs.

Since oil is fungible, the added costs are on everyone, not just Russia.

The U.S., U.K., Canada and Australia have banned imports of Russian oil, but it would not be the least bit surprising if via mixing at sea some of that got through to the US.

The EU says these shipments are necessary because of long-term contracts. OK, then why the mixing at sea to destinations unknown?

The obvious answer is countries want to appear as if they are sanctioning Russian oil, but in practice cannot afford to cut off supply.

It’s easy for the US to say it will take no Russian oil or gas when it takes little of the former and none of the latter.

The EU would have to sanction ships, not just Russia. But then how does it get oil?

Yellen Yap

Yellen provided the “Hoot of the Day”.
Adding your Tweet to my post.

How Russia Avoids Oil Sanctions: Transfer at Sea to “Destination Unknown”

Russian oil still flows under the radar. It goes to “destination unknown”.

I have a modest proposal.https://t.co/16JCHIB89e

— Mike “Mish” Shedlock (@MishGEA) April 21, 2022

Modest Proposal

I have a modest proposal: End the sanctions.

It’s clear the oil is getting through anyway, allegedly headed to nowhere. Meanwhile, the disruptions are driving up inflation everywhere.

The EU wants to appear it’s doing something, but that cost of that appearance at the expense of reality is higher inflation for everyone.

By ending the sanctions, the cost of all these supply chain shenanigans will go away.

Bipolar System

Treasury Secretary Yellen is worried about Russia avoiding sanctions via China, India, etc

The irony in this madness is the US is concerned about China and India breaking US sanctions when the EU transacts with Russia, hidden in plain sight.

For discussion, please see Janet Yellen Warns China on Russia and Creating a Bipolar Global Financial System

Using Ethereum and Bitcoin, Not the Yuan, to Avoid US Sanctions on Russia

Numerous countries have established ways of avoiding the US dictating sanction policy for the world.

In case you missed it please consider Using Ethereum and Bitcoin, Not the Yuan, to Avoid US Sanctions on Russia.

This post originated at MishTalk.Com.

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46 Comments

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Webej

2 years ago

It’s not just ‘Destination unknown’ and Europe to which Russian oil is flowing.

Have read several times that US imports of Russian oil are up, as well as diesel.

Traditionally, the US excepts itself from sanctions while punishing its vassal states for any lapses.

RonJ

2 years ago

Reply to Webej

“Traditionally, the US excepts itself from sanctions while punishing its vassal states for any lapses.”

U.S. Congress was even exempted from Covid shot mandates forced on the U.S. military personnel and government employees.

Congress is also exempt from insider trading rules.

Jojo

2 years ago

Reply to Webej

Cite?

Jojo

2 years ago

“I have a modest proposal: End the sanctions.”

You clearly do not understand politics. This will never happen unless Trump somehow manages to come out of the woodwork and gets elected president.

Sanctions are like being hung. Many are not killed immediately but instead strangle painfully as the noose slowly tightens under their weight. This is what will happen with Russia, especially as alternative suppliers for their oil are found. Their economy will be ground further into the dirt.

TexasTim65

2 years ago

Reply to Jojo

Sound like exactly what’s happening to the US middle class as the sanctions add more heat to the already rampant inflation.

The question is who blinks first. Western middle class consumers or Russia.

Doug78

2 years ago

Reply to TexasTim65

The American middle class does not depend on Russia in any way. European middle classes do depend on Russian oil but only temporarily since alternate supplies will come online in a year or at most two. A recession is well worth being free of Russian blackmail. The time of blinking and negotiation has been passed a long while ago. Putin has no credibility and any promises he could make will not be believed. There is no more blinking possible.

Webej

2 years ago

Reply to Doug78

Imagine Russia actually stops oil exports.

Where will the alternative supply come from, or barring any, what would the effects be outside of Russia?

Doug78

2 years ago

Reply to Webej

If you are only talking about oil since Russia only makes up not even ten percent of the world’s export market a combination of energy savings and increased pumping from present producers should suffice. Medium-term and long-term will see a surge in projects as high oil prices have always resulted in. It will also result in a surge of money going into alternate energy and into battery research and production. The object would be to get Russia’s oil exports down to the level of that of Iran, about two million barrels a day. No doubt about it, countries will be paying more for energy and most will be looking at ways not to use oil anymore of to source from areas that are secure. Russia unfortunately for her has specialized in the export of commodities to the determent of more high-margin products.

Webej

2 years ago

Reply to Doug78

Oil demand is fairly inelastic. The supply is not there.

Farmers and peasants in the third world will be priced out entirely, including pesticide & fertiziler.

All the attrition will be among the world’s poorest people: hundreds of millions, including children.

Yemen will just be one among myriad hot spots.

Supply projects take upwards of 5 years to be realized, and will also increase the marginal cost, since extra supply will by definition be supply that today is not economical.

Doug78

2 years ago

Reply to Webej

Oil demand is elastic as Russia will see. It is just one form of energy. I rather doubt that third world farmers and peasants were Putin’s concern when he invaded a country that grows a lot of their food and furnishes a lot of their fertilizer.

RonJ

2 years ago

Reply to Doug78

McCain wasn’t thinking about third world farmers when he was meddling in Ukraine.

Doug78

2 years ago

Reply to RonJ

Not many people think of third world farmers generally.

LPCONGAS99

2 years ago

Reply to Doug78

LOL. Alternate supplies will come online that quickly? I hope so

And I have to ask, so you are saying Trump was right about Nato, Europe and Russian oil?

LPCONGAS99

2 years ago

Reply to TexasTim65

Well if that is the ? then I think someone from Texas should know the answer………Lets see, panty waist Middle class western consumers whom have a meltdown if the almond milk in their double decaf frappuccino is missing or the Russian people whom have known more suffering in a day than we have in a lifetime……………I’ll go with the Western Middle Class for $1,000 Alex(may God rest that beautiful mans soul)

StukiMoi

2 years ago

Reply to Jojo

The only thing sanctions do, is enrich middlemen who can evade them. IOW, more of the same enrichment of people for creating nothing of value, at the expense of those who do create value, which has already rendered The West increasingly uncompetitive at anything whatsoever other than exactly this sort of theft.

]

whirlaway

2 years ago

Reply to Jojo

“This is what will happen with Russia, especially as alternative suppliers for their oil are found.”

Typical Dumbocrat delusion. If Russia is blocked, the so-called alternative suppliers would be able to sell at higher prices. The only way prices would come back to their original levels is if the world goes through a severe recession.

Doug78

2 years ago

Russian oil production has dropped by 10% since the war began and will fall further. From satellite imaging flares from Siberian wells show a decline of 10% of oil production and it is only the beginning. This is a long haul and we are only at the beginning.

link to bloomberg.com

Their storage is full so they now have to stop pumping oil from the wells. When you stop pumping from a well you don’t just turn off the tap. You have to cap it. Normally a temporary cap will do if you expect to recommence pumping soon. If not you need a permanent cap if the well if offline over six months. The temporary caps start leaking after a few months so a choice has to be made at some time to go permanent of not. The Siberian wells are at another disadvantage in that since they are located on permafrost the wells have to keep flowing. If not the permafrost freezes up again around and under them and reopening becomes quasi-impossible and environmentally dangerous. When the Soviet Union fell their oil production fell too and it took Western expertise to bring back online the wells and it was only in 2019 that Russia’s oil production matched that of the old Soviet Union. The sanctions will be on for years and Russia will lose three million barrels of production at least and that production will not come back. As an aside the companies specialized in capping the Russian wells, temporary or permanently, are all Western oil services companies who no longer will operate in Russia. The Russians are lousy in this technology and the Chinese even worse.

When you put on sanctions as hard as we have done it forces the monetary flows into narrow channels which are easy to identify and subsequently once identified will be cut off by one means or the other. The Far Eastern pipelines are rather limited as to their additional pumping capacity and will take years of investment to increase their production if ever since much of it depends on Western technology and parts which are no longer available. The Western European pipelines are under Western European control and not Russian. Totally Western Europe takes almost two-thirds of Russian oil so that is locked down. That leaves one-third of Russia oil and only two areas where Russia can export oil, the port of Novorossiyskon the Black Sea and through the Baltic port of Ust-Luga. If it becomes useful Ukraine could make it extremely expensive and dangerous for foreign ships to use that port. Now with the extra insurance rates the cost of loading oil in Novorossiyskon is equal to over 10% of the total cost of the ship itself which is very prohibitive. Going without insurance would be suicide since the company would be liable for oil spills and such. To take oil there will become even more expensive now that it has been shown that Russia does not control all of the Black Sea. That port will be compromised. That leaves the Baltic port where rates are much lower but so is capacity and which commerce through the Baltic sea depends on the OK of the countries along the way who are not very inclined to be friendly to Russia at this time.

To sum up, Russia can export some oil using under means but not enough to make a difference. They are screwed.

Dutoit

2 years ago

Reply to Doug78

I think that this is very good for Russia, as well it would be very good for Norway, for example, to severely limit its production of gas, because its value will be much higher in the future.

Jojo

2 years ago

Reply to Dutoit

[roflol]. I don’t have enough fingers or toes to count the number of times I have heard such foolishness in the past. Usually, it goes the other way.

Doug78

2 years ago

Reply to Dutoit

Gas is ubiquitous. A temporary upward blip will bring in more production leading to a plunge. Long-term oil charts show a boom in prices always followed by a bust. It’s the commodity cycle and when it’s largest customer no longer uses them then the price of their oil will fall.

Jojo

2 years ago

Reply to Doug78

Good post!

StukiMoi

2 years ago

Reply to Doug78

“Russian oil production has dropped by 10% since the war began and will fall further.”

Since the way rational entities respond to an external shock, is not to work to mitigate its effects over time and stuff……

Unless a growing world population suddenly decides that “poor and freezing” is the new “rich and warm,” oil producers will sell their oil. Small countries can be harassed a bit by others who prefer less competition, but Russia is too big for that.

Just as Europeans will be happy to wean themselves off absolute dependence on Russian energy by enabling other sellers, so will Russia be happy to wean themselves off of dependence on European buyers by finding other ones. It’s not like there are a shortage of people wanting oil and gas…. End result being a more resilient, albeit a slightly more expensive, distribution infrastructure. Along with a ditto payment one. Both of which will ultimately prove better suited to a world rendered increasingly unpredictable. By China/Asia taking over the drivers’ seat, while the past few centuries’ big powers recede in relevance. With the latter throwing all manners of destructive tantrums on the way out.

Doug78

2 years ago

Reply to StukiMoi

If Russia were to be free to sell to whomever it wants but it isn’t and won’t be because of what they are doing in Ukraine and how they have threatened the liberal democracies. This is not a free market situation. This is war and we are at its beginning. Negotiations are out on the US and European side because there is nothing to negotiate nor will anyone believe Putin in anything. . Arms in ever greater quantities with higher lethality are flowing into Ukraine. The Russia is too big for that is a fallacy. Whatever Russia sells can be found elsewhere and the embargo is resulting in investment flowing into finding those resources that Russia sells but that are outside of Russia. The problem with oil and gas is not that much in finding it anymore but more on the environmental concerns it raises. Russia now has very high counterparty risk and it will be kept in that state for as long as necessary.

Webej

2 years ago

Reply to Doug78

Can you name any liberal democracies they have threatened recently?

Doug78

2 years ago

Reply to Webej

All of the EU plus Sweden and Finland hence the strong reaction. War initiated by Russia on their doorstep is seen as a direct threat to their existence. Putin crossed the line with that plus his nuclear blackmail. The liberal democracies took his threats seriously, decided that Putin means what he says and wrote and told them to their faces. The choice was surrender or fight a bit like Ukraine. Putin didn’t see that coming.

Business Man

2 years ago

Reply to Doug78

Thanks Doug…I’m learning quite a bit as well.

RonJ

2 years ago

Reply to Doug78

“War initiated by Russia on their doorstep is seen as a direct threat to their existence.”

Putin did not overthrow Yanukovich.

Doug78

2 years ago

Reply to RonJ

No one cares about Russia’s justifications anymore. Every country in Europe has been invaded and have done their own invading so Russia is not special in that account. Europe has been at peace for 70 years and then Russia comes up and says that Nato has to withdraw from most of Europe and that the US must pull all nuclear weapons from Europe. Furthermore all concessions will come from Nato and none from Russia. Virtually all European leader went to talk to Putin and he repeated his demands. He made it clear if his demands were not met then there will be war. He expected major concessions but what he got was war.

Webej

2 years ago

Reply to Doug78

Russia has never said the regime in any European State had to change.

Nor has it ever said it would go to war against any one of them.

Nor is there any real evidence that this is their aim, despite a few out of context phrases people have made into talking points.

The configuration of the armed forces does not support projection of power [unlike the US], only defense. By the way, the Georgia conflict was initiated by Georgia and NATO/Israeli help, according to official inquiries.

As for the so-called nuclear blackmail, Putin mentioned this after specific comments from Liz Truss encouraging NATO to do something to Russia, and after the umpteenth announcement of a siege. It is actually the US that has the most permissive doctrine on the use of tactical and other nuclear weapons. Escalate to Deescalate, etc etc. The US has always boycotted conference on global denuclearization, is the only party to have used nuclear weapons, has several times been on the threshold of deploying them, and adamantly refuses a first strike prohibition.

… if the Russian president was not stopped in Ukraine, there could be “conflict” between Russia and Nato …

“If we don’t stop Putin in Ukraine, we are going to see others under threat: the Baltics, Poland, Moldova, and it could end up in a conflict with Nato. We do not want to go there.”

Doug78

2 years ago

Reply to Webej

Why then if all this is a misunderstanding then it can be fixed by Russia withdrawing from all of Ukraine. Problem solved.

StukiMoi

2 years ago

Reply to Doug78

“Whatever Russia sells can be found elsewhere”

So that’s why oil prices rose 4-fold since the 90s, per Ukraine war….. Despite more efficient recovery and distribution technology?

And why “We” “need” to bomb half or Arabia on a permanent basis, to “pjotekt” “allies” selling the same stuff the Russians are selling..?

“Negotiations are out on the US and European side because there is nothing to negotiate nor will anyone believe Putin in anything.”

Noone of consequence gives a toot about what a bunch of has-been nothings are “willing” or “believe” in anymore. What the heck do those has-beens have to offer? Other than petty self promotion and grandstanding? As well as a perhaps a history of being relevant to in some ways.

Russians offer to sell freezing people heating oil at competitive prices. With largely no strings attached. Macron offers to sell them what, in exchange for not buying oil from Russia? A French flag to wrap themselves in over winter? As long as women promise to not cover their head with it and instead freeze? Ditto America. What the heck do those flat-footed, chest-thumping fatsos have to offer anyone anymore, other than a laugh as their “President” falls down another flight of stairs.

Mindless, self congratulatory babble, is not a negotiating position. The fact that you used to, 50 years ago, have more to offer, can carry you on blind faith alone for awhile. But not indefinitely. Not when the sheer rot, and your current utter irrelevance and inability to engage in anything whatsoever besides crass theft, is THIS obvious.

SyTuck

2 years ago

Reply to Doug78

In the long haul Asia will consolidate and become less reliant on the west.

North America will become rich as the island of military, tech and independence that it is.

Europe will be even more subjugated to the whims of both east and west, with Ukraine being reduced to rubble and forgotten. A cast aside pawn in the new world order chess game.

And all according to plan.

The only wild card is how the impending implosion of china will shake out

prumbly

2 years ago

Reply to Doug78

Russian oil production dropped 10%! But oil prices rose 50%. Russia’s current account surplus has never been higher than it is today. We sanctioned ourselves in the foot.

Mr. Purple

2 years ago

Russia is still current on its interest payments too. Weird, it’s as if this sanction stuff is pure theater and no substance at all.

Qui bono?

Jojo

2 years ago

Reply to Mr. Purple

I don’t believe that is correct. They tried to pay in Rubles and it wasn’t accepted. They now have 30 days to early May to make good. Failure to do so WILL result in a default.

Doug78

2 years ago

Reply to Jojo

Which will open up through international law to create liens on Russian assets outside of Russia which will crimp its ability to trade and move assets. It’s lawfare.

Dutoit

2 years ago

Reply to Jojo

I think that a country whose money is stolen should cancel all its debts (to the thieves).

Jojo

2 years ago

Reply to Dutoit

That’s called bankruptcy. Creditors remember events like this and if/when you are allowed to borrow again, your costs will be higher than others.

Dutoit

2 years ago

Reply to Jojo

I think that a continent like Russia, with so many resources, should not need any loan, provided it it correctly managed. Sanctions will improve the management (as was already done for agriculture since 2014).

Zardoz

2 years ago

A junkie never boycotts a dealer for long. We require cheep fuel for our twice daily trips to Bed Bath and Beyond in the family urban assault vehicle, or our culture will collapse.

Karlmarx

2 years ago

Reply to Zardoz

Its 100 years of development though. Prior to the invention of the automobile most americans lived in villages and rarely went far from home. You had access to stuff either at the general store or maybe from the Sears cagalogue. If you lived in a city you might have access to more selection but it was a pretty gross environment.

If cars were to go the way of the bustle today, society is simply not set up for survival. How can one get to a retail store if they live 10 miles from a town. How can I get from the island that I live on to the bank, or the post office, or the grocer when they are all 10 miles away?

The restructuring would be devastating

TexasTim65

2 years ago

Reply to Karlmarx

We would go back to how things were in the early 70s.

I still remember the milkman delivering milk door to door twice a week (we lived a couple miles outside town). Other items were similarly delivered once or twice a week (bread etc).

I recall only going to town once a week with my dad for groceries that weren’t delivered and other errands that needed to be run. There were also small local general stores outside cites that had some common items in addition to a gas pump.

The massive sprawl of bedroom communities where you seen square miles of just homes and no businesses would have to go or at least have restrictions changed to allow a few general stores.

Zardoz

2 years ago

Reply to Karlmarx

And inevitable. Oil is finite.

KidHorn

2 years ago

Reply to Zardoz

I thought BBB went bankrupt. Where I live, people drive to home depot to buy 20 or so annuals for $6 each, along with $15 bags of potting soil that they carry home in their SUVs. They could have just bought some seeds off ebay, a bale of peat moss and a bag of pearlite for 1/10th the cost and ended up with the same thing.

StukiMoi

2 years ago

Reply to Zardoz

“…our culture will collapse.”

Has collapsed.

Karlmarx

2 years ago

This is what happens when politicians (basically lawyers who never worked before) are allowed to make decisions for businesses.

Sanctions impact markets and economies. They might be useful in economic matters, but the Russian invasion is a military matter. Either Ukraine is an ally and it matters, and you provide military assistance and troops, or it is not an ally and who cares what happens.

How Russia Avoids Oil Sanctions: Transfer at Sea to “Destination Unknown”

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