War profiteering: Eight UK-insured tankers violate price cap, boosting Kremlin revenues by GBP 87 mn

An investigation led by the Centre for Research on Energy and Clean Air (CREA) has found suspected violations of the price cap on Russian crude oil by eight tankers covered by UK Protection & Indemnity (P&I) insurance.

Between October and December 2023, no shipments of Russian crude oil departing from the port of Novorossiysk were traded below the price cap. In this same period, 8 of 26 shipments of Urals crude from the port were covered by UK Protection & Indemnity (P&I) insurance. There is strong evidence to suggest that these tankers conducted trades that were in direct violation of the EU/G7 sanctions, trading Russian crude oil above the USD 60 per barrel price cap according to customs data.

These eight tankers covered by UK insurance transported 928,546 tonnes of Russian Urals grade crude valued at GBP 411 mn from the port of Novorossiysk between October and December 2023. CREA calculated the value of this oil based on the average barrel price per month exported out of the port of Novorossiysk, when all shipments were carried out above the price cap level according to Russian customs data. 

If these eight shipments had been carried out at the price cap level, the Russian crude oil would have been sold at an estimated GBP 324 mn.

In addition to a lack of enforcement of the price cap, a major loophole in existing sanctions has also allowed Russia to boost its revenues from exports of crude oil. This loophole enables countries not imposing sanctions on Russia, such as India, China and the UAE, to legally import Russian crude oil, refine it into oil products, and export those petroleum products to the UK and EU.

A previous analysis by CREA found that between December 2022 and November 2023, 3% of the UK’s total imports of oil products from 12 refineries was estimated as derived from Russian crude and 77% of these imported oil products were jet fuel. Over half of these imports of jet fuel (52%) comes from three refineries in India: Jamnagar, Vadinar and New Mangalore. 

CREA’s analysis has found that for UK importers, jet fuel imported from these Indian refineries was a mere 2% cheaper than that from other sources in 2023. A ban on them therefore will not create significant inflationary pressure on the market. This 2% discount is only serving importing Big Oil companies, who have saved an estimated total of GBP 21.8 mn with these imports in 2023. 

Key findings

  • 33% of all Russian oil (by volume) was transported on tankers insured in the UK since the sanctions were implemented on 5 December 2022 until early November 2023. 
  • Eight of 26 shipments of Urals crude between October and December 2023 departing from the port of Novorossiysk were on tankers covered by UK P&I insurance. In this same period, no shipments of Russian crude oil departing from the port of Novorossiysk were traded below the price cap, suggesting that these tankers conducted trades that were in direct violation of the EU/G7 sanctions. 
  • Violations of the price cap by tankers covered by UK insurance contributed an additional GBP 87 mn (+27%) to the Kremlin war chest.
  • GBP 444 mn of jet fuel imported by the UK is estimated as being produced from Russian crude oil.
  • Over half of the UK’s imports of jet fuel (52%) from refineries using Russian crude comes from three refineries in India — Jamnagar, Vadinar and New Mangalore. 
  • For UK importers, jet fuel imported from Indian refineries processing Russian crude was a mere 2% cheaper than that from other sources in 2023. A ban on them therefore will not create significant inflationary pressure on the market.
  • Although importing oil products refined from Russian crude is totally legal in the UK, importing cheaper jet fuel benefitted companies, who may have saved an estimated total of GBP 21.8 mn by importing jet fuel from India. Meanwhile, the UK’s imports of oil products derived from Russian crude have sent GBP 144 mn in tax revenue back to the Kremlin war chest — equivalent to 28% of the humanitarian aid it has so far provided to Ukraine.
  • The UK must close the refining loophole that legally enables oil produced from Russian crude to flow into sanctioning countries, financing the Kremlin’s war in Ukraine.

Policy recommendations

  • Ban imports of oil refined from Russian crude. The first step for the UK to further cut Kremlin revenues from oil exports and enhance the impact of sanctions would be to ban the importation of oil products produced from Russian crude oil. This ban would disincentivize third countries from importing large amounts of Russian crude — a proportion of which is turned into oil products for export to sanction imposing countries — and help cut Russian revenues. The low reliance (3%) of the UK on oil products produced from Russian crude means that if the UK banned these imports, it would have no significant inflationary pressure on domestic oil product prices.
  • Apply stronger enforcement & harsher penalties. The UK Office of Financial Sanctions Implementation (OFSI) must investigate UK entities and insurance firms that have provided services to facilitate the maritime transportation of Russian oil above the oil price cap. Severe penalties must be imposed on firms that violate sanctions thereby facilitating the increase in Russian oil export earnings above the price cap that are then used to fuel the war on Ukraine.
  • Address attestation fraud. Price cap coalition countries must develop a ‘white list’ of traders that undertake a high proportion of their business operations in sanctioning countries. Only companies on this ‘white list’ would be allowed to attain maritime insurance from countries located in price cap coalition countries.
  • Lower price cap to USD 30 per barrel, which would have slashed Russia’s revenues by GBP 2.5 bn in April 2024 alone and is still well above Russia’s production cost that averages USD 15 per barrel.

Isaac Levi, Europe-Russia Policy & Energy Analysis Team Lead, CREA; Vaibhav Raghunandan, EU Russia Analyst & Research Writer, Centre for Research on Energy and Clean Air (CREA)

Global, Russia, United Kingdom