The US Treasury has tightened sanctions against “little-known oil traders with opaque ownership structures”

The United States is trying to strengthen the price ceiling for Russian oil, the implementation of which has been greatly shaken in the last six months. On December 20, Washington imposed sanctions against Hong Kong traders Bellatrix and Covart, Voliton from the UAE, as well as Sun Ship Management, which manages the transferred Sovcomflot oil tankers. Many similar previously little-known traders began trading Russian oil in the spring of 2022 after the introduction of sanctions. Kommersant’s interlocutors believe that now these traders who are on the SDN list will be replaced by new mysterious players.

The US Treasury has tightened sanctions against “little-known oil traders with opaque ownership structures” who deal with Russian oil after the outbreak of hostilities in Ukraine. The SDN list includes Hong Kong companies Bellatrix Energy and Covart Energy, as well as Voliton DMCC from the UAE.

The largest of these is Bellatrix, which only began dealing with Russian oil in May 2022, but has quickly become one of the most significant sellers of Russian-origin crude.

Sanctions prohibit any transactions with companies included in the SDN list.

Until the spring of 2022, the main transactions with Russian oil were carried out by major international traders such as Trafigura, Vitol and Glencore, but against the backdrop of sanctions they gradually abandoned cooperation with Russian oil companies. The latter were also forced to redirect raw materials from the European to the Asian market. In the context of sanctions on Russian state-owned oil companies, well-known traders in transactions with Russian oil were replaced by companies with unknown owners registered in “friendly” jurisdictions. Only LUKOIL, against the backdrop of sanctions, retained trading through its largest trader Litasco, but through the Litasco Middle East division created in the UAE. In parallel with the emergence of new traders, a gray fleet of tankers began to grow – ships registered to little-known companies in jurisdictions such as Hong Kong or the UAE – which gradually took an increasingly larger share of Russian oil shipments.

Bellatrix mainly sold products purchased from Rosneft to foreign markets, but recently the trader’s activity has fallen sharply. In September, according to Kommersant, Bellatrix carried out operations on more than 20 cargoes of oil and petroleum products from the Russian Federation, but in November-December the number of shipments became minimal. Since mid-June 2023 alone, ships chartered by Bellatrix have made more than 150 calls to Russian ports, the US Treasury said in a statement.

Covart And Voliton began trading Russian raw materials relatively recently – in May and June 2023, respectively. Kommersant’s interlocutors believe that it will not be difficult for Russian players to replace these intermediaries, since “they use a whole network of agents who can be used in case of sanctions.”

The Emirati one was also included in the SDN list. Sun Ship Management, to which the largest shipping company of the Russian Federation, Sovcomflot, transferred dozens of tankers after the introduction of Western sanctions. The reason for the introduction of American sanctions was that the Sun Ship – SCF Primorye – was involved in the transportation of oil sold above the oil price ceiling imposed by the West of $60 per barrel. The ban on transactions with Sun Ship will be effective from March 19, 2024. Sovcomflot did not respond to Kommersant’s request. At the same time, in October Sovcomflot began transferring tankers from Sun Ship management to the new Dubai company Oil Tankers SCF MGMT FZCO.

Most of the traders who traded Russian oil at the end of 2022 have disappeared from the market, and in the same way the affected companies will be replaced by new ones, notes Victor Katona of Kpler.

The biggest problems will arise for Sovcomflot, as Sun Ship Management has become a temporary solution for its fleet as it relocates operations from Cyprus to the UAE. Now, it is likely that the fleet will have to be re-registered to a new company, the expert notes. Sanctions will not have a serious impact on the market, since dozens of traders work with Russian oil and other companies will replace those affected by sanctions, agrees Sergei Kondratyev from the Institute of Energy and Finance. But the intensity of the introduction of sanctions has increased in recent months, this puts pressure on the market, the expert believes: “We are already seeing an increase in the discount for Urals to Brent – now it is $17-18 per barrel (on CIF basis in Europe), while in October it was $10 -eleven”.

The US Treasury also updated its guidance on the application of the price ceiling for Russian oil, which was intended to reduce Russia’s income from trading in raw materials. The EU and the USA began to apply it simultaneously from December 5, 2022, prohibiting their companies from providing financial, shipping and insurance services for the transportation of Russian oil sold at a price above $60 per barrel. However, in the last six months, Russian oil companies have been able to overcome these restrictions, and Urals has consistently traded above this level. The US Treasury now requires service providers to obtain confirmation of compliance with the ceiling from their counterparties every time they load or ship Russian oil. Traders are required to provide transaction documents within 30 days, otherwise it will be considered a violation of sanctions.

Dmitry Kozlov