Russian Oil Exports Deliver A $1 Billion Per Month Windfall To "Mystery" Middlemen

One year ago, conventional wisdom was that Western nations would throttle Russian oil exports to starve Putin's war machine, depriving the Kremlin of much needed cash, tipping the scales of global oil markets into a state of demand imbalance, and sending the price of crude high in the triple digit stratosphere.

It ended up being just the opposite, and despite the pompous rhetoric and countless "sanctions", Western government did everything in their power to enable Putin to export as much oil as possible to willing buyers such as India and China. A few days ago, none other than Goldman Sachs explained how the virtue signaling rhetoric of western "democracies" which spent much of 2022 vowing they would cripple Russian oil exports was nothing but one big lie, and meanwhile behind the scenes oil-starved western nations were doing everything in their power to prevent Russian oil from exiting the market, an outcome which they knew would send inflation soaring even more, to wit:

[Russian] production rebounded sharply by June 2022 as alternative vessels were quickly sourced from the global ‘dark’ and ‘grey’ fleet, that were not reliant on Western financial and logistical services. Eventually, the G7’s price caps on oil permitted any vessel to facilitate Russian oil flows if the cargo was priced below the caps. The key point is that the 2022 disruption was ultimately political in nature, and Western governments had the ability to take actions to reduce disruptions, which they did.

But while the end of the 2022 "political" disruption meant that Putin would gladly receive tens of billions in US Dollars in exchange for Russian oil every month, he was not the only beneficiary: it turns out the "dark" and "gray" fleet referenced by Goldman above - mostly various Greek tanker and shipowners - has also greatly rewarded.

As Bloomberg writes, while Russia’s main crude grade is still selling well below international benchmarks as a result of the G7-imposed price cap which is a tacit blessing for China and India to buy as much Russian oil as they want, and at a lower price than all other oil purchases around the world, a huge amount of money for delivering it continues to go into the hands of mystery middlemen.

The country’s flagship Urals grade averaged about $52 a barrel so far this month at the Baltic Sea port of Primorsk, according to data from Argus Media, a discount of about $20 compared to Dated Brent (a discount which was as wide as $40 at the start of the year). The G-7 only allows firms to provide key services such as insurance and tankers for Russian oil exports if the barrels cost $60 or less.

However, what Bloomberg noticed is that the gap between the export price and the import price in India stood at about $12 a barrel so far in June. The size of that spread matters because, multiplied by export volumes, it implies about about $900 million a month is going into the hands of a web of the abovementioned "dark" and "gray" intermediary firms — traders, shipbrokers and tanker owners — whose affiliations are unclear and who are willing to anger the US state department while transporting millions of Russian barrels of oil. The gap has nevertheless whittled down, having averaged $13 in May and $15 in April.  

russian oil exports deliver a 1 billion per month windfall to mystery middlemen

Even so, Urals is still trading at hefty discounts to international prices. Large amounts of oil trades relative to Dated Brent, a physical price benchmark anchored in the North Sea. Urals averaged about $23 less than the marker so far this month, about the same as in May, but a slightly smaller discount than in April, according to Argus data.

russian oil exports deliver a 1 billion per month windfall to mystery middlemen

The mystery "commission" delta means that more than half of this Urals to Brent spread is going to enterprising middlemen and "gray" oil merchants who facilitate the sale of Russian oil to India and China.

The European Union banned seaborne imports of Russian crude back in December, the same time as the price cap was introduced. The prohibition forced Russian barrels to discount to compete for buyers in Asia; however it has done nothing to actually halt Russian oil exports, and not only is "Russia Set to Overtake Saudi Arabia in Battle for China’s Oil Market", but Russian oil continues to flood global markets. In the process, those "mystery middlemen" are becoming extremely rich at the expense of ordinary European citizens who are being crushed by runaway inflation and who could be buying oil at a much lower price if only Russian crude was allowed to enter every market instead of just India and China, but thanks to their clueless politicians, Putin is keeping energy inflation in the two largest Asian nations subdued while Christine Lagarde continues to hike rates into what is now officially a technical European recession.

Authored by By Tyler Durden via ZeroHedge June 29th 2023