Britain softens sanctions

Britain’s government on Tuesday announced measures to officially levy new sanctions on Russia — but in effect they essentially weakened restrictions on Russian oil so far as to render them pointless.

• Britain’s new sanctions law bans the import of petroleum products processed using Russian oil at refineries in third countries. This fulfils the promise given by the Foreign Minister in parliament on Oct. 15 last year. But right after, the Department for Business and Trade issued a license exempting diesel and aviation fuel, which represents the bulk of imported petroleum from Russian oil refined in third countries. The two documents clarify the legal situation but open the British market for petroleum which, since January, has been banned from sale in the EU. 
• The decision could open a window for Russian oil not just into Britain, but into the EU. When Europe imposed sanctions in January, partner countries, which at the time included Britain, were allowed to not disclose the origins of petroleum products when re-exporting to Europe. It was assumed that these countries would also apply similar restrictions on Russia. It’s now unclear whether that provision will be revised, or if Britain will become a gateway for petroleum products made from Russian oil to enter the EU.
• Another discrepancy between British and European rules concerns the definition of origin. The EU requires refineries to physically separate Russian oil from other sources and is only willing to purchase petroleum on condition that there are no “Russian molecules.” Britain’s definition is less strict, and effectively relies on assurances from refineries themselves.
• Along with a third extension to the US 30-day permit for third countries to buy Russian tanker oil, the opening of the British market for diesel and aviation fuel from Russian oil is an obvious boost to the Russian budget. A hypothetical Indian refinery no longer fears sanctions when buying Russian oil and gains a market for its products. As a result, demand for Russian oil increases, the discount is almost erased, the average price of contracts goes up and the Russian state gains extra funds. Unlike the US 30-day permit, Britain’s is indefinite, although it can be reviewed.

Why the world should care

The war in Iran has been highly beneficial to the Kremlin. Fuel shortages, and efforts from the US and UK to curb price rises have led to probably the most significant erosion of the sanctions regime — all without Moscow having made a single concession. That only strengthens Russia’s belief that sooner or later “pragmatism” will win out and the entire sanctions system collapse.