Russia last week relaxed a ban on exports of base oils, lubricants and other petroleum products to Ukraine, stepping back from sanctions that had been gradually imposed during six years of geopolitical confrontation with the West over Ukraine.
Similar to Moscow’s embargo on the import of European food products into the country, the sanctions against Ukraine have made little economic sense, “and these measures reflect the abrupt political decisions made by the state” during the years of the standoff, an industry insider told Lube Report.
A governmental decree adopted on Oct. 8 grants exports of “lubricants for other purposes” along bitumen and bitumen mixtures. The shipment of these products are allowed in monthly allotments and with special permission by Russia’s ministry for economic development.
“It is very difficult to comment on the reason for such a ban,” said Oleg Tsvetkov, chief specialist at Topchiev Institute of Petrochemical Synthesis of the Royal Academy of Science. “It can be seen only as an execution of a political decision by the state.”
After Russia’s annexation of Crimea in 2014 and subsequent imposition of Western sanctions against Moscow, Russia initiated a trade war against Ukraine.
Since then, Moscow imposed an embargo on the export of different types of petroleum products to Ukraine, such as crude oil, diesel fuel and liquefied natural gas, as well as certain types of base oils and lubricants. According to Russia’s government, the reason was that these products could be used in military equipment. The types of lubricants banned for shipment mostly met older Gost specifications and included products such as industrial oils and hydraulic oils produced by Rosneft or engine oils for military equipment.
Gost specifications are an obsolete Soviet-era standards used in outdated, Russian made cars, machinery and equipment.
In 2016, the Russian government relaxed the sanctions by allowing exports of diesel fuel and liquefied natural gas so long as suppliers obtained permissions from customs officials. Iin 2019, gasoline and propane-butane were added to this list of products handled in this way. In that same year, though, a number of new products were added to those that could not be exported to Ukraine, including crude oil, ethylene, ethane, propylene, butylene and other natural gas byproducts.
Some companies considered the ban only a bureaucratic hurdle. Russian base oil and lube marketers found ways to bypass these sanctions, probably through the use of intermediary companies and by transporting through Belarus or other countries, Tsvetkov said. Re-exporting this way typically requires further processing or manufacture in stop-over countries, which increases the costs of such products.
“It is not easy and costs more, but there are ways for Russian base oils to be shipped to Ukraine, the same way as sanctioned [food] goods are coming to Russia through Ukraine [or Belarus],” Tsvetkov said.
According to Consulting Group A-95, of Kiev, Ukraine bought 67,000 tons of motor oils from Russia in 2019, or 91% of the motor oil imported to the country last year. In the first eight months of 2020, Ukraine bought 43,000 tons of Russian motor oils, or 86% of total imports of these products for that period.