How Russian oil is reaching the U.S. market through a loophole in the embargo

Amna Nawaz:

After Russia's invasion of Ukraine, the U.S. and European allies banned the import of Russian oil and natural gas.

But a new report reveals that hundreds of millions of dollars worth of fuel, in part made from Russian crude, still ending up in American gas tanks.

Nick Schifrin and producer Teresa Cebrian report on a new investigation released today by the organization Global Witness.

Nick Schifrin:

In one of the country's biggest ports, in one of its largest cities, a ship full of ill-gotten gains. Last month, the Balzani arrived in the New Harbor carrying more than 500,000 barrels of fuel made in part from Russian crude oil. It turns out that U.S. imports are helping fuel Russia's war machine.

Lela Stanley, Global Witness:

For the first nine months of 2023, that crude oil was worth to the Kremlin at least $180 million.

Nick Schifrin:

Lela Stanley is co-lead for the Stop Russian Oil Campaign at Global Witness, an international NGO that tracked the shipments of fuel made with Russian crude oil and is today exposing their value to Moscow.

Lela Stanley:

It's enough for 105 Kalibr cruise missiles, 8,600 of the Iranian drones that have been attacking Kyiv, so it's a lot of money.

Nick Schifrin:

The story begins in Siberia, which holds the majority of Russia's oil reserves. Russia produces 9.6 million barrels of crude oil per day, its single most important source of revenue.

And it sells that oil to countries outside the U.S. and European Union, including China, the United Arab Emirates, Turkey, and India, home to the world's largest oil refinery, the sprawling Jamnagar refining complex.

Before the war in Ukraine, Jamnagar imported almost no Russian crude. Today, Global Witness found about one-third of its monthly crude imports are Russian. At Jamnagar, the Russian crude is blended with other foreign crude and refined into gasoline, diesel, and other products that can be legally bought by American companies.

It's then shipped with vessels like the Balzani through the Red Sea, into the Suez Canal, the Mediterranean and Atlantic Ocean, and, in this case, New York's Upper Bay.

Lela Stanley:

After the invasion of Ukraine, the U.S. banned the direct import of Russian oil. However, other countries that then started buying that oil can legally refine it and sell it to the U.S. That's the refining loophole, and that's what we're trying to change.

Nick Schifrin:

Global Witness found, between January and September of this year, the U.S. imported 30 million barrels of fuel from refineries running on Russian oil. In total, that crude arrived in at least 13 cities in seven states.

Among the companies importing that oil, BP, Sunoco, and Shell.

Lela Stanley:

American companies are still linked to this revenue chain funneling money back to the Kremlin.

Nick Schifrin:

This is relatively a drop in the bucket for Russian exports and revenue and a drop in the bucket for American consumption. So why is this important?

Lela Stanley:

It doesn't make any sense to support Ukraine and the Ukrainian people the way we have on the one hand and also allow this revenue of flow to continue.

Rep. Lloyd Doggett (D-TX):

We never anticipated this type of circumvention.

Nick Schifrin:

Texas Democrat Lloyd Doggett helped write the original legislation that banned Russian oil and natural gas from being imported into the U.S.

Yesterday, he introduced the Ending Importation of Laundered Russian Oil Act designed to close the loophole. "All products that were produced at any refinery that uses crude oil originating in the Russian Federation shall be banned from importation into the United States."

Rep. Lloyd Doggett:

We're simply saying, don't accept refined products here in the United States from oil that is Russian that has been refined in a third country.

America led on this last year, and we need to lead on it again and try to close these loopholes and deny Russians any dollars that could go out there and be used for more attacks on Ukraine.

Nick Schifrin:

But what the U.S. hasn't tried to do, close off all Russian oil. That would increase American gas prices.

Janet Yellen, U.S. Treasury Secretary:

A price cap on Russian oil is one of our most powerful tools.

Nick Schifrin:

Instead, the leading industrialized countries have tried to limit Russia's oil revenue, with a $60-a-barrel cap on oil sold with Western shipping or insurance.

But Russia has found ways around the price cap. In October, it sold oil on average for more than $80 a barrel, and its total oil export revenues were $18.34 billion, among the highest since July 2022. That's in part thanks to Russia's shadow fleet.

Elina Ribakova, Peterson Institute for International Economics: Russia built up its shadow fleet and moved away from the reliance on the G7 countries insurance and ship providers. That makes the implementation of the world price cap very challenging.

Nick Schifrin:

Elina Ribakova is a senior fellow at the Peterson Institute for International Economics. She says the price cap was originally a success, but now Russia is circumventing it, thanks to that shadow fleet and weak Western enforcement.

Last month and today, the U.S. has sanctioned five shipping companies for transporting oil sold above the cap. And, this week, the U.S. sent notices to 100 vessels suspected of violating sanctions. But, otherwise, it has failed to enforce its own rules, says Ribakova, who advocates for stronger punishment.

Elina Ribakova:

We do need to think about the bold measures. And we have put forward secondary sanctions, saying that, look, if an Indian company is circumventing sanctions, we're going to use sanctions on you.

So, basically, it's taking the legal system of the U.S., but applying it beyond the borders of the United States.

Rep. Lloyd Doggett:

I believe that we do need to do more. We need to be looking at all countries that are not participating in the price caps and are doing other things to assist the Russians on oil.

Nick Schifrin:

But Doggett is a member of the House India Caucus and argues punishing India might threaten other U.S. policy, especially toward China.

Rep. Lloyd Doggett:

The modest action that I propose in this legislation I think can be done without unsettling our relationship with India. Going much further with full secondary sanctions could present a problem. And it will take some time and some diplomacy to hopefully get more cooperation from the Indians.

Nick Schifrin:

In the meantime, Global Witness' exposure and the closing of the loophole could be small first steps to get Russian fuel out of American gas tanks.

For the "PBS NewsHour," I'm Nick Schifrin.