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Major loopholes in existing oil and gas sanctions have allowed Russia to boost its revenues from exports of crude oil, and the United Kingdom — one of Ukraine’s closest allies — is able to take advantage of it. Addressing the issue ahead of the UK elections is not only crucial to demonstrate commitment to ethical trade, but also not to undermine the effects of bi-leteral aid Ukraine so far received from the United Kingdom.
The “Refining Loophole” in Action
According to a recent analysis conducted by a B4Ukraine partner CREA, between December, 2022 and November, 2023, the UK imported GBP 444 million worth of jet fuel made from Russian crude. This generated GBP 144 mn of tax revenue for the Kremlin’s war chest — the equivalent of 28% of the humanitarian aid London has so far provided to Ukraine. Three Indian refiners — Jamnagar, Vadinar and New Mangalore — are the most critical for supplying the UK market with jet fuel made from refined Russian crude.
The refining loophole lets Russian crude oil refined in the so-called “laundromat countries” (India, China, Turkey) to “lose” its Russian origin, allowing its legal re-export to the UK, US and the EU.
While importing oil products refined from Russian crude is entirely legal in the UK, importing cheaper jet fuel has benefited primarily Big Oil companies, potentially saving them an estimated total of GBP 21.8 million by importing jet fuel from India.
According to CREA, jet fuel imported from these Indian refineries was only 2% cheaper for UK importers compared to fuel from other sources in 2023. Therefore, banning these imports would not exert significant inflationary pressure on the market, while halting the financing of Moscow’s war in Ukraine.
Price Cap Violations by UK-Insured Tankers
In addition, an investigation led by CREA has found suspected violations of the price cap on Russian crude oil by eight tankers covered by UK Protection & Indemnity (P&I) insurance.
As per the requirements of the price cap policy introduced in December 2022, companies from the coalition countries may transport Russian crude and petroleum products only if these are sold at or below the established price cap level of $60 per barrel.
According to CREA, between October and December 2023, all shipments of Russian crude oil departing from the port of Novorossiysk were traded above the price cap, suggesting a direct violation of the EU/G7 sanctions. 8 of 26 shipments of crude oil departing from the port of Novorossiysk were on tankers covered by P&I. These eight UK-insured tankers that violated the price cap policy generated GBP 87 million for the Kremlin’s war chest.
As a crucial ally and bilateral donor to Ukraine, the United Kingdom holds a unique position to tackle the existing loopholes and enforce sanctions, which is essential in hampering Russia’s ability to continue its unjustified war against a peaceful neighbor.
The UK can cut Russia’s war funding in 5 steps
Close the “refining loophole” by prohibiting the importation of oil products refined from Russian crude oil.
Apply stronger enforcement & harsher penalties. Strengthen the Office of Financial Sanctions Implementation to investigate UK entities and insurance providers.
Tighten legislation to prevent traders from under-reporting the price paid for Russian oil.
Create a ‘white list’ of traders allowed to use Western-owned or insured tankers, requiring them to provide bank statements to verify compliance with the price cap.
Lower price cap to USD 30 per barrel, which would have significantly slashed Russia’s war economy.