Following the Russian invasion of Ukraine, international sanctions have forced major players in the oil trading business to wind down their operations with Russian oil producers such as Rosneft and Gazprom. As Russia redirects most of its oil exports to India and China, a shadow industry has emerged, providing an economic lifeline for Russia with its major new customers. In place of the likes of Shell and BP and other major trading houses, the names of several recently established, little-known companies have emerged in the Middle East and Asia, and over recent weeks investigative journalists have identified over a dozen Dubai-based firms that are participating in the Russian oil trade.1
Sanctions and price caps
As part of the Western world’s most recent attempt to limit Russia’s financing capacity, the EU and US imposed a price cap on Russian oil. Since December, companies using Western insurance companies are banned from transporting oil if this was purchased at a price higher than US$60 a barrel. However, Russian oil exporters have found new markets in Asia where these sanctions don’t apply.
Sources suggest that a lot of the Russian oil trade is now being conducted using Roubles, with Dollars and Euros being increasingly phased out of the transactions. Several news outlets have indicated that UAE- and Turkey-based banks are the main sources of financing for these trades, replacing European lenders. However, neither the shipping companies nor the lenders are in violation of sanctions as EU and American sanctions only apply to entities registered on their territory.2
Dubai shipping companies
A look at some of these newly registered Dubai firms involved in the Russian oil trade on Diligencia’s online platform ClarifiedBy.com reveals some interesting details.
While keeping an extremely low public profile, Tejarinaft FZCO is one of the companies transporting the largest amounts of Russian oil. Incorporated only last year, it states on its website to rely on its experience and expertise to ship crude across various jurisdictions including China, India and Turkey. The registered CEO, Hicham Fizazi, has a negligible online presence, and all attempts by news outlets to contact Tejarinaft have failed.
Another company heavily involved in the oil trade with Russia is Dubai-based Paramount Energy and Commodities DMCC. Paramount Energy & Commodities SA, a Swiss-based company founded and headed by Niels Troost, pulled out of Russian oil trading last June in order to comply with sanctions. Both companies claim that they are operated and managed independently of each other and that Troost has no ‘direct’ holding in the Dubai-based Paramount. Diligencia’s own research, however, indicates that Paramount SA owns 100% of Paramount DMCC. Analysis of both companies’ trading activities suggests that Paramount DMCC has effectively taken over the cargo operations of Paramount SA; it now handles almost identical types and quantities of cargo from the same Russian ports as Paramount SA did last year before withdrawing due to sanctions. Paramount SA has since removed its website from the internet.3
In February 2023 Dubai-based SUN Ship Management Ltd was found to be helping Russia circumvent sanctions. Following international sanctions placed on Russian-owned entities, the entire 92-strong tanker fleet belonging to Russian state-owned company Sovcomflot is believed to have been transferred to SUN Ship Management. Information on ClarifiedBy.com reveals that almost all management positions, current and former, are held by individuals with Russian names, all of whom chose to not disclose their nationality at the DIFC. Additionally, our data shows that SUN Ship Management underwent a name change in 2015, changing from SCF Management Services. The correlation to the Russian state-owned company Sovcomflot appears too great to be purely coincidental.4 Following this discovery SUN Ship Management was sanctioned by the EU and Switzerland and can be found on five sanctions lists on ClarifiedBy.com.
Other Dubai-based companies which have recently become large stakeholders in the shipping of Russian oil include QR Trading DMCC, Coral Energy DMCC, Marshal Shipping LLC, Koban Shipping LLC, Everest Energy DMCC and Petroruss DMCC (the latter two operated by Russian nationals). There are multiple connections between the companies mentioned above, with several of them operating from same addresses and sharing local sponsors, as is the case with Marshal Shipping LLC and Koban Shipping LLC from the list above, for example.5
Outlook
Where there is an opportunity to provide an essential service, companies will almost certainly step in and the likelihood is that more of these obscure companies will emerge or re-form in other guises – not just in the UAE but in other jurisdictions too (Hong Kong for example). Nonetheless, the Financial Times reported that Russian revenues from oil exports fell by nearly a third in the first quarter of 2023, which suggests that the price caps are taking effect.6 While Russian oil export revenues in the final quarter of 2022 amounted to US$54.5 billion, output from the first quarter of this year registered only US$38.8 billion, with analysis suggesting that Western sanctions were directly responsible for around three quarters of this fall in revenue.
As markets and players adjust to the evolving sanctions regime, creative ways to circumvent them will develop and new companies based in the Middle East and Asia will inevitably fill the gap left by Western companies. While Western countries can only lobby and exert political pressure on those nations to limit the assistance provided to Russia, increased clarity around the shipping companies and their owners can enable compliant organisations to minimise their sanction exposure.