Under US$3.00? US$4.22? Over US$7.00? Oil has become one of the most widely discussed topics in the media, with global disputes such as the Russo-Ukrainian War thrusting oil prices into chaos. Swiftly changing costs and sanctions have driven local and global governments to find alternatives for the “black gold.” Both the European Union and the United States have imposed sanctions on Russia in response to the invasion of Ukraine. As a result, Russia—the world’s third-largest producer of oil with over 10 million barrels generated each day—has struggled to find methods of selling its products. However, under enduring international pressure, an illegal market has emerged for routing petroleum from Russia into other countries.
Background of Illegal Oil Trades
Oil is one of the most important commodities in the world, converted into petroleum to power vehicles, planes, heating, and electricity, as well as used in ubiquitous materials such as plastics, paints, chemicals, and tape. In 2022, the oil industry accounted for about three percent of global GDP, and trade in crude oil was valued at US$640 billion in 2020, making it one of the world’s most-traded commodities. In addition, the industry attracted more than US$511 billion in investments in 2020, making it highly capital-intensive. Much of this revenue is due to the transportation and sales of the product, with four main forms of transactions: state sellers distributing to state and non-state buyers, and non-state sellers performing the same. Much of the illegal activity within the oil industry occurs within the latter category: non-state sellers to non-state buyers.
Although these transactions are usually the smallest, they are ubiquitous and ultimately transport large quantities of uncontrolled oil. Often taking place within the less-capital-intensive segments of the supply chain such as transportation, illegal activities are less likely to occur during the extraction or refining stages. One such operation is located in Mexico, where gas station owners and oil companies grapple with local cartels. These cartels access oil by installing illegal taps on state-owned pipelines, with one study finding taps every 1.4 kilometers along a company’s network, indicating 8,655 oil taps and 623 gas taps across the 14,000-kilometer network. In 2018, this thievery sapped approximately 81,000 barrels a day from the oil company Pemex, amounting to around US$3 billion in lost revenue.
The current situation surrounding Russian oil is significant because it breaks from this pattern: state actors are the key players in illicit oil trading. Recently, uncontrolled oil movements have occurred around the Russian border; EU and US sanctions have created difficulties for exporting Russian oil, prompting the Russian government to seek illegal alternatives for distribution.
EU and US Sanctions on Russia
The European Union has imposed sanctions on Russia since 2014, after the annexation of Crimea and the non-implementation of the Minsk agreements. Aiming to punish Russia for its aggression towards Ukraine, these economic sanctions include import and export restrictions, economic caps, and visa measures. To maximize the negative impact on the Russian economy, the European Union has stated that goods such as crude oil, refined petroleum products, coal, and steel cannot be imported from Russia to the European Union. The oil ban was implemented in June 2022 and “prohibits the purchase, import, or transfer of seaborne crude oil and certain petroleum products.” Bulgaria and Croatia are exceptions due to their geographical situation, which requires a dependence on Russian suppliers. In addition to the ban, the European Union has created a price cap that sets standards for the purchase of barrels of crude oil, discounted petroleum products, and premium petroleum products. Limiting price surges while reducing Russia’s revenues, this cap ensures that the Russian economy faces financial damages. Finally, the European Union has prohibited its vessels from transporting Russian crude oil and petroleum products to third countries, further restricting Russia’s exportation markets.
In February 2024, the United States released a document detailing the progress and effects of its two-year price cap on Russian oil. Although the United States determined that completely banning Russian oil would have significant negative consequences for the US economy, the government decided to implement a price cap on Russian oil. Countries in the United States’ Price Cap Coalition—a group dedicated to constraining Russian revenues that could otherwise be used to fund Russia’s war of aggression against Ukraine—are only allowed to support the Russian oil trade if the oil is sold at or below a specific price. As the Coalition encompasses many prominent countries, including those of the European Union and Group of Seven, its restrictions have had severe implications for Russia. Forced to abide by these policies, Russian suppliers have responded by selling oil at a significant discount, facing decreased oil tax revenues of more than 40 percent as a result. The Russian government has acknowledged that the US-enforced price cap forces Russia to sell at lower prices without significant effects on the global energy market.
Sanction Impacts on Russia
These restrictions have already contributed to a decrease in Russia’s GDP, with a 2.1 percent drop in 2022. Both the World Bank and the IMF had predicted that Russia would experience increased imports and decreased exports in 2023. They were correct: in 2023, Russian exports decreased by 28.3 percent to US$425.1 billion, while imports increased by 11.7 percent to US$285.1 billion. Compared to the previous year, January 2023 saw a 26.9 percent decrease in revenues from fossil fuel exports, and February 2023 saw a 41.7 percent decrease. However, despite these monetary shifts, many other indicators show that Russia has found alternative methods for exporting its “black gold.”
Russia’s “Shadow Fleets” and the Complicity of Third-Party Countries
Russian oil has been making its way across the globe through a variety of tankers and boats, referred to as Russia’s “shadow fleet.” In November 2023, The Washington Post found that petroleum products that had originated in Russia were still flowing to the Motor Oil Hellas refinery in Greece. Rather than traveling directly to Greece, the oil was routed through facilities in Türkiye to hide its Russian origins. The tankers, departing from ports on the Black Sea, travel through the Bosporus Strait to the Dörtyol shipping terminal in Türkiye. From there, the oil is shipped to Greece, where it is mixed into the supply purchased by the US military. Of the 5.4 million barrels of fuel oil recorded in the Dörtyol shipping terminal, all but 1.9 million were discovered to have originated from Russia. Strikingly, it is the US Pentagon buying Russian oil to fuel its ships and planes.
In another instance, Russian crude oil was refined in nearby countries such as India or China before being sold to the United Kingdom. Although technically not a breach of the UK ban on Russian oil, the exports still undermine sanctions intended to cut Russia’s oil revenues. As these refining countries have not imposed similar sanctions on Russian oil, they are legally able to import the oil, refine it into products such as jet fuel and diesel, and then sell the products across Europe. Global Witness, a campaign group advocating for human rights and the environment, estimated that over 5.2 million barrels of refined petroleum products that originated in Russia were imported into the United Kingdom in 2023. Primarily using three oil refineries in India and nine others across other Asian countries, Russia is exploiting political loopholes to continue profiting off of oil exports.
Russia’s recent oil distribution methods raise key questions about combating the complicity of China, India, and other third-party states. Russia’s range of illicit tactics also suggests that conventional international sanctions alone may be insufficient.
Future Policy Measures
As organizations continue tracking these loopholes, policymakers are formulating additional policies to prevent illicit activities. Both US and EU lawmakers have attempted to push for a total ban on fuel imports from refineries that use Russian crude oil. However, more work needs to be done to further advocate for these bans. Any profit that Russia receives from oil exports can be used to fund aggression against Ukraine. As the Russian economy is highly dependent on this trade, taking harsher economic action—such as imposing sanctions on complicit third-party countries—should undermine Russia’s ability to further the conflict. The US government has continued to consider further measures and monitor the situation. Ultimately, any proposed policies must encompass the wide range of illicit oil movements facilitated by Russia.
