How oil sanctions have failed
By Mark Corrigan: in The Canberra Times, September 3, 2023
It was a mild Sydney winter morning in early June. Locals, still licking their wounds from the Ampol State of Origin loss, were transfixed by the Ben Roberts-Smith war crimes judgment over their morning flat white.
Few would have thought twice about the nondescript oil tanker appearing at Cape Solander later that morning before being guided into the Port Botany terminal to disgorge its load. Who knew where it came from, where it was going or what it was carrying. Who cared? Shipping news is not so popular in an age of container ships and tankers.
On this particular June Friday, the tanker delivered 23,152 tonnes of 91 octane petrol to the terminal, enough to refill almost 1 million Toyota Yaris tanks. The petroleum product had been collected three weeks earlier from a refinery in north-east China, one of many in that region. A refinery that processes Russian crude oil.
How does a Russian-derived petroleum product make its way to Australian shores within just 15 kilometres of Prime Minister Albanese's electorate office? Didn't the Australian government impose sanctions on Russian products? Aren't we part of the so-called "price-cap coalition"?
There are few issues on which Australians can agree so strongly as our support for the people of Ukraine under attack from Russia. Given the size and wealth difference between those fraught neighbours, we naturally stand up for the underdog.
Sanctions also incentivise an early withdrawal of Russian troops, penalise the aggressors and limit any military assistance that Australia-Russia trade may offer. The evidence suggests that our sanctions are far from strong and slow down only the most direct trade paths.
Russia's economy is largely dependent on oil and gas production. Prior to Russia's 2022 invasion of Ukraine, fossil fuels accounted for around 50 per cent of government revenue and 20 per cent of GDP. It was the world's second-largest exporter of crude oil. Oil and gas undoubtedly fund Putin's war effort, so international sanctions have logically focused on this sector. Australia includes many of the entities and individuals associated with Russia's oil and gas industry in its sanctions list. Despite Australian government efforts and announcements in this regard, we remain active participants in the laundering of Russian oil.
Given that there are now only two remaining oil refineries operating in Australia and Bass Strait, oil production is well past the reserve's 20th century heyday, country of origin is hidden behind layers of crude oil transport, refining, finished product shipment, terminals and distribution.
It is impossible for an Australian fuel consumer to make an ethical choice to avoid Russian oil short of buying an electric vehicle. We therefore must rely on our federal government to establish a trade framework that reflects the community's moral aspirations.
Consider how the June oil tanker came to deliver its tainted cargo to Port Botany.
At 4857 kilometres long, the East Siberian-Pacific Ocean (ESPO) oil pipeline is one of the longest in the world. The pipeline is operated by Kremlin-controlled Transneft. That company and its CEO, Nikolay Tokarev, are both sanctioned by the Australian government. Major Russian companies exporting crude oil via ESPO include state-controlled Rosneft and Gazprom plus private sector Lukoil and Surgutneftegas.
Rosneft, its CEO and chairperson Igor Sechin plus many of its directors appear on Australia's sanctions list. Sechin has long been a close ally to Vladimir Putin. The CEO of Gazprom, Alexey Miller, is sanctioned by Australia. Lukoil, along with oligarch CEO Vagit Alekperov, is sanctioned. So is the President of Surgutneftegas, Vladimir Sivkovich. The Australian sanctions list reads like a who's who of Russian oil trade. Surely that should give Australian motorists peace of mind.
Enter China. In addition to supplying the port of Kozmino and a number of Russian east coast refineries, a spur from the ESPO pipeline exports to the state-owned China National Petroleum Corporation (CNPC) pipeline network supplying major refineries in Liaoning province of northeast mainland China.
Commodities analyst S&P Global reports that these refineries process a feedstock consisting of 15-50 per cent ESPO crude oil blend. One such refinery, Jinxi, is operated by CNPC subsidiary Petrochina.
Shipping data shows that a tanker, the Hafnia Beijing, arrived at Jinxi port on May 10, 2023. Hafnia is a large Danish ship operator headquartered in Singapore who insist they "[believe] in zero harm to people". The tanker collected its load of petroleum product ready for delivery to Vopak's petroleum terminal at Port Botany on June 2. From there it was distributed to NSW and ACT outlets. Up to half of the imported batch is likely to have been extracted from Russian oil fields, operated by sanctioned Russian oil companies, run by sanctioned Russian individuals and delivered through a pipeline operated by another sanctioned Russian company.
This is not the only example and is unlikely to be the last unless the Australian government actively closes loopholes enabling Russian oil product to reach our shores.
India in particular has stepped into its third-party Russian oil refiner role with gusto. CREA reports that in the year immediately prior to Russia's invasion of Ukraine, India imported 3.85 million tonnes of Russian crude. This increased to a staggering 55.9 million tonnes in the year following, primarily through the Gujarat ports of Sikka and Vadinar. Vadinar's refinery is operated by Nayara Energy, an entity 49 per cent owned by Kremlin-controlled Rosneft.
With each trade legally sidestepping sanctions, Australian dollars are moving counter to international oil flow, back through retail petrol outlets, terminals, oil industry traders and third party refiners, ultimately paying Russian oil companies. Profits or taxes from those trades are returned to the Russian government and ultimately help fund Putin's brutal war and occupation.
Australia has energy options. Our petroleum supply does not need to be at the expense of Ukraine's security. And Australian motorists must feel secure knowing they are not filling their Toyota with fuel tainted by Ukrainian blood.