Singapore’s role in effective enforcement of Russian fuel sanctions – The Diplomat

Oil storage firms and traders operating in the Singapore Strait making report an increase in the number of fuel suppliers blending and re-exporting Russian fuel, even as the European Union and the G7 countries have imposed fuel sanctions to put economic pressure on Moscow to stop its military aggression against Ukraine. The current sanctions include a ban on the use of Western-provided marine insurance, financing and brokerage services for Russian crude oil at a price higher than chapter at $60 per barrel. An increase in the re-export of oil with a hidden origin is reported. signaled due to increased demand for oil storage facilities in Singapore with the cost of a six-month lease of Singaporean fuel oil or crude oil storage. height by as much as 17-20 percent over the previous year.

Vortexa vessel tracking data showed that Singapore’s oil receiving terminals took more than twice the volume of Russian naphtha — light oil used to break down heavier oil — and fuel oil in December 2022 than in December 2021. It is reported that traders can enjoy a profit margin of about 20% compared to the usual 10-12% from blending Russian fuel components purchased at the marginal price with fuel from other sources and selling the blended fuel oil at the market price.

In response to requests Bloomberg about their possible reaction to the rise in re-exports of blended fuels, Singaporean government officials in January referred to past statements about the prohibition and price cap policy without further comment on whether they intended to more strictly enforce widespread multinational sanctions restricting access to Russian oil. Several factors may have contributed to Singapore’s restrained response to non-compliance with sanctions by ships passing through its ports, but non-compliance with these requirements has serious implications for the overall effectiveness of the sanctions.

Barriers to the application of sanctions

Determining the origin of sold crude oil is challenging due to long supply chains in which fuel is sold multiple times before use, and the ability of transport ships to conduct unsupervised remixing operations in international waters. Areas within and near the Singapore Strait, where oil tankers frequently pass and may conduct illegal fuel “swap” maneuvers, are inconsistently monitored and regulated poorly respected agreements such as the United Nations Convention on the Law of the Sea. Ships may also false document where the oil shipments come from, and manipulate the location of their automatic identification system transceivers to confirm false documentation.

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Determining which sanctions apply to a situation can be no less difficult. After the Russian invasion of Ukraine in February 2022, imposed its own limited set of targeted sanctions and export controls aimed at preventing Russia from acquiring weapons. However, Minister of State for Trade and Industry Low Yen Ling declared that the companies “have been informed of the ban imposed by the EU and other countries”. Experts demand that the increased volumes of Russian oil stored in Singapore are likely to be re-exported to Northeast Asian markets.

Unlike the EU, which adopted a complete ban on the import of crude and refined oil from Russian sources into the region, these areas in Northeast Asia are not subject to direct sanctions. However, the excess can flow into bunker fuel used by marine vessels based in Singapore, Indonesia and Vietnam, placing a heavy responsibility on city-state officials to ensure that the fuel used by local companies is not illegally obtained. Moreover, according to Price cap coalition countries such as the EU and the US increased their imports of petroleum products from Singapore by 33 percent after Russia invaded Ukraine, according to a report by the Center for Energy and Clean Air Research.

Singapore’s lukewarm response to a possible breach of sanctions could also be due to a lack of political will, as reflected in the official’s comments after Singapore follows costly international policies to prevent tax evasion. Singapore recently raised its effective tax rate for large Singaporean multinational enterprises (MNEs) to 15 percent to bring it in line with the standards set out in the OECD Base Reduction and Profit Shifting Initiative. This move is expected to raise the budget tighteningwith an opportunity resettlement multinational companies such as DBS Group Holdings Ltd. and Oversea-Chinese Banking Corp. In his speech on February 14, Deputy Prime Minister Lawrence Wong proposed that multinational corporations are “seeking to move to places where they are less likely to be caught in geostrategic crossfire,” implying that Singapore will not allow itself to pursue policies that restrict business operations based on international politics.

Options for the future

Some Singaporean government officials have suggested that individual private companies be held responsible for enforcing the international sanctions regime. Minister Low Yen Ling started declared that “companies in Singapore will have to [personally] consider and manage any potential impact on their business, operations and customer relationships when dealing with Russian crude oil and petroleum products.” Oil storage firm Advario Asia Pacific Pte, one of the companies that provided data showing growth in demand for short-term/term oil storage, states they independently “verify the source of the product to ensure compliance with Russian sanctions before accepting it.”

However, without government monetary incentives, companies are less likely to allocate additional resources to comply with sanctions. Advario is only one of many commercial oil storage companies in Singapore, including Jurong Port, Horizon and Royal Vopak, that provided varying degrees of responses regarding their intentions to screen incoming export oil for origin.

Another option is for the United States to impose secondary sanctions, which the Treasury is pursuing as a way dissuade neutral countries from openly violating sanctions in the past. Earlier this year, the US Treasury announced he sanctioned Unicious Energy Pte. and Asia Fuel Pte., two small oil trading firms based in Singapore and Malaysia, respectively, due to their relationship with the sanctioned Malaysian firm Triliance, which was found in 2020 to facilitate oil supplies on behalf of the National Iranian oil company. This brings The total number of Singaporean oil companies fined by the US for non-compliance with sanctions has reached three.

In the case of Unicious and Asia Fuel Pte, the US Department of the Treasury was able to impose comprehensive sanctions-based secondary sanctions on the Iranian and Iranian subsidiaries they partnered with without having to consider whether the regions they exported to could maintain direct sanctions. against the import of Iranian oil. However, forcing direct sanctions through the threat of secondary sanctions opposite to the main motives for the imposition of sanctions by the countries that are subject to sanctions.

Non-cooperation by previously active partners such as Singapore, the only ASEAN member to impose direct sanctions on Russia, plays into the Russian narrative that the sanctions are unilateral. led by the West operations, undermining the intentional signal of the sanctioned countries that a Russian invasion of Ukraine is totally unacceptable. Singapore’s oversight of non-compliance with sanctions also reduces the effectiveness of sanctions, as they severely limit Russia’s ability to profit from oil sales. In April of this year, Russian maritime exports Rose to the highest level since early 2022, with most of the increase due to increased shipments to Asia. Oil exports to Asia at present check about three-quarters of what was previously sent to Europe, undermining Russia’s 17 percent decline in fossil fuel export revenues achieved in the first month after sanctions were imposed.

Without the Singapore government imposing sanctions on ships and companies that do not comply with the sanctions, Russia is likely to continue to export oil with impunity, reducing the cost of a significant expenses faced by countries trying to signal their disapproval of the Ukrainian invasion through sanctions.

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This article has been originally published in New Perspectives on Asia by the Center for Strategic and International Studies and reprinted with permission