Russian oil entering UK via refinery loophole

Research suggests that the UK continues to purchase millions of barrels of fuel derived from Russian oil, even though sanctions have been placed due to the conflict in Ukraine.

A "loophole" refers to refining Russian crude oil in nations like India and then selling the resulting goods in the UK.

This action is not illegal and does not violate the UK's prohibition on Russian oil. However, opponents argue that it weakens the effectiveness of sanctions intended to limit Russia's financial resources for war.

The UK government refuted any claims of importing Russian oil since 2022.

However, a spokesperson clarified that according to globally acknowledged "rules of origin," once crude oil is processed in a different country, it is considered to originate from the country where it was refined for commercial reasons.

'Closing the gap'

The United Kingdom and many other Western nations have banned importing oil and oil products from Russia. This measure aims to reduce Moscow's potential financial gains from fossil fuels.

However, two distinct sources, which have been exclusively shared with the BBC, indicate that the refining regulations for importing goods from Russian crude oil into the UK could be higher.

The Centre for Research on Energy and Clean Air (CREA) has highlighted a "refining loophole" that allows nations like India and China, who have not imposed sanctions on Russia, to lawfully import Russian crude oil and process it into various oil products, including jet fuel and diesel.

Subsequently, they exported such items to countries like the United Kingdom and the European Union. "This loophole has the effect of boosting the demand for Russian crude oil, leading to increased sales in terms of volume and driving up their price. Consequently, this results in a larger amount of funds being sent to the Kremlin's war chest," said Isaac Levi, who serves as the head of CREA's Europe-Russia policy and energy study.

'Putin uses oil to fund troops'

According to a distinct study document, the campaign organisation Global Witness estimated that in 2023 the United Kingdom purchased around 5.2 million barrels of refined petroleum products derived from Russian crude oil.

The most imported fuel, totalling 4.6 million barrels, was jet fuel. The organisation's researchers proposed that this fuel was used in around 5% of all flights in the UK.

Lela Stanley, the campaign leader for the Ukraine team at Global Witness, said that while the UK government vehemently denounces the conflict in Ukraine, it is still involved in the sale of Russian oil by maintaining an open refining loophole and, therefore, complicit in this matter.

"Each and every pound expended on Russian oil contributes to Putin's funding of his ruthless conflict," she said.

According to the data provided exclusively to the BBC by CREA, it is predicted that the UK purchased oil products worth £569 million from Russian crude during the first 12 months of the Russian oil boycott starting from December 2022.

Both stories said the alleged loophole indirectly resulted in the Kremlin receiving over £100m in tax income.

Most of the imports mainly originated from three Indian oil refineries - Jamnagar, Vadinar, and New Mangalore, and nine others located in other nations, including China.

The estimations provided by CREA and Global Witness relied primarily on studying oil shipping information obtained from the data and analytics company Kpler. The price data was sourced from Eurostat and supplemented by other relevant sources.

CREA and Global Witness acknowledged that the two study publications relied on assumptions and recognised the difficulties and constraints of evaluating this kind of transaction.

India is at the forefront of the desire for more affordable Russian oil.

Data from the International Energy Agency reveals a rise in Indian imports of Russian crude oil since the commencement of the conflict in Ukraine. Russia reduced its oil prices to entice prospective purchasers as a reaction to the imposed sanctions.

Following the invasion, the UK has increased its importation of Indian jet fuel and petrol.

Russia is the third-largest oil producer globally. Oil production involves extracting unrefined petroleum from beneath the earth's surface, which is then transported to refineries for conversion into numerous products, such as petrol, diesel, aviation fuel, and other polymers.

Russia's economy relies heavily on these exports. Western partners have imposed many sanctions on Russia, including limiting oil prices, to prevent Moscow from receiving more than $60 per barrel of crude oil.

However, the severity of the measures is doubtful since the International Monetary Fund recently revised its prediction for Russia's economic growth in 2024 from 1.1% to 2.6%.

The imposition of sanctions has also affected the countries implementing them, resulting in a significant increase in prices for both oil and gas. This cost surge occurred as nations, particularly those in the European Union, urgently sought other sources of supply, moving away from reliance on Russia.

Effects of penalties.

In January of the previous year, trade data indicated that the United Kingdom did not import any fossil fuels from Russia. However, in 2021, the total value of gas, oil, and coal imports from Russia to the UK amounted to £4.5 billion.

According to a spokesperson for the UK government, there has been a complete absence of Russian oil and oil products being imported into the UK since the implementation of sanctions.

He said that importers must now provide evidence that the items are not of Russian origin and also disclose the country from where the goods were last sent to prevent the diversion of Russian oil via other nations.

Brian Mulier, the co-head of the international commerce and customs group at the legal firm Bird & Bird, said that according to the laws of origin, Russian crude oil processed in a country like India would be officially classified as Indian oil.

"The determination of a change in origin is based on significant processing," he said. "If Russian refined oil products undergo significant processing outside of the Russian Federation, they are no longer considered to have originated from the Russian Federation."

According to an oil industry insider, the UK needs more self-sufficiency in diesel and must acquire it from external sources. If the UK gets fuel from India, it can avoid other sources and transfer the increased cost to the customer.

"It is not difficult to implement a complete ban."

Oleg Ustenko, the economic advisor to Ukrainian President Volodymyr Zelensky, has urged Ukraine's Western partners to strengthen the existing sanctions by completely prohibiting all refined oil products obtained from Russian crude oil.

"We must employ all available measures to sever financial support to Russia." "We must ensure that they are deprived of sufficient funds to sustain this violent conflict against us," he said.

"It should be implemented in these countries that are genuinely our allies." Commencing in the United Kingdom, European Union, and United States. The UK may quickly implement such a restriction.

Mr. Levi from CREA said implementing such a measure would effectively eliminate the refining loophole.

Matt Smith, an analyst at Kpler, a prominent research source, said that while it is challenging to distinguish the specific refined oil products derived from Russian sources, it is reasonable to assert that some of the refined goods entering Europe are manufactured from Russian material.

According to him, the UK was getting oil products from India that were probably processed from Russian crude.

Mr Smith said that the loophole, often referred to as such, was eroding the effectiveness of penalties. However, he acknowledged that the issue was complex.

"It is infeasible to separate Russian crude or products derived from Russian material from the global market," he said. "Russia is a significant player in the global market, and the authorities are reluctant to eliminate Russian supply due to the potential price surge it would cause."

Several US legislators had advocated prohibiting gasoline import from refineries that use Russian crude oil the previous year. US congressmen Lloyd Doggett and Joe Wilson introduced a measure to eliminate the refining loophole.

None of the three Indian oil refineries responded to the BBC's requests for comment.