India will continue to use Russian oil regardless of the western sentiment
The initial outcry of banning all Russian oil never came to fruition because it is not possible globally
Key Judgements:
The sanctions on Russian oil have not and will not cripple Moscow as was expected
Commodities traders/brokers with existing relationships and logistical capabilities will be able to capitalize during this energy crisis
Firms willing to accept reputational risk for large profits will likely succeed
The ongoing global energy crisis is far from over. In the invasion of Ukraine and subsequent Russian sanctions, there was an expectation that India would remain more committed to the west and enforcing the sanctions. There are now allegedly Indian firms accepting oil from Russian suppliers with the intent to refine it with their own oil and sell it back to the western market under the Indian flag. Something similar to drug dealers cutting up products to increase volume and disguise the original creator.
India is roughly the world’s third-largest consumer of oil. They had been on a steady increase of oil imports before COVID where there was a lull in demand domestically but it has since increased and is back near its all-time highs.
The sanctions on Russian oil have gotten mixed support amongst members of the EU and NATO. Most countries in Europe have been dependent on Russian oil and natural gas for so long they don’t have any other options but to buy from Russia until another low-cost option presents itself. They are at Russia’s mercy while indirectly financing the war in Ukraine through purchases of Russian oil and natural gas. India has avoided any Russian sanction enforcement for various reasons, their military is primarily made up of Russian technology and those contracts are still ongoing so cutting ties would be a waste of resources. Also, longstanding relationships have already been made between Russia and India. The increase in Russian oil being sold to India shows that India is firmly in line with Russia in the war in Ukraine regardless of the sanctions.
Ships like the SCF PRIMORYE and the ALEKSEY KOSYGIN have been transiting oil between Russia and Indian ports since the war has begun.
Both ships are operated by SCF Management Services Dubai and owned by separate shell companies with addresses that redirect to SCF in Dubai. This is not an uncommon practice, after the Exxon Valdez oil spill Exxon moved most of its ships under shell companies with separate names to mitigate brand risk if another spill occurred so it would not forever be remembered with their name in it.
Further information on SCF Management Services, shows it as an international consortium of companies that trace back to SOVCOMFLOT which was sanctioned on February 24th, 2022 by Executive Order 14024 Directive 3. The locations listed in the sanctions do not explicitly mention the address in Dubai only in Russia and Cyprus. The Dubai offices have ~88 tankers registered to them as an operating company, predominantly oil, some chemical, and some LNG tankers. All flagged in Liberia or Cyprus, both good flags to avoid taxes and regulations for the owners.
Trafigura
Trafigura is one of the largest commodities brokerages on the planet, headquartered out of Singapore and with a global reach. When the war began they immediately said they would unwind all of their Russian positions to avoid undue risk and sever ties with Russia’s Rosneft. They wrote down their stake in Vostok Oil on the Russian mainland and said they are no longer dealing with sanctioned firms in their mid-year guidance.
However, it is worth noting that Trafigura has entered into joint ventures with Russia’s Rosneft for a 25% holding in Nayara Energy an Indian firm that has taken delivery of the oil from the SCF Management Services Dubai ships. Also, Trafigura is the majority owner of Puma Energy and presumably still does business with Russia to supply Europe with Russian oil before a price cap or ban is decided upon.
Summary
Commodity brokers like Trafigura aren’t beholden to any specific country and there should be no expectation that they should be. with the oil supply and demand situation in a continual state of flux and private firms with the relationships and logistics networks already set up in order to capitalize on them, they are in a unique position, to accept reputational risk for real profits. “Charging double in a drought” is a common practice amongst savvy salespeople the world over, will these types of tactics affect ESG investors or will the global bear market help them realize that the ESG plays were all smoke and mirrors, to begin with?