Earlier this month, former foreign minister Sir Alan Duncan warned of the risk of imposing too many sanctions on Russia. He warned the economic retaliation could backfire, with a high cost for Britain.
The former Conservative MP highlighted in an interview the risk to future UK gas supplies from sanctions. The message was clear: ministers need to tread carefully in waging economic war against the Kremlin.
Duncan, a former minister of state for Europe and the Americas, told BBC Radio 4’s Today programme: “Of course we want to disadvantage Russia, but we don’t want to disadvantage ourselves that we fall into some kind of dystopian economic collapse. And we are on the edge of that.”
It was a sobering analysis, but failed to note that sanctions also threatened to bite into the revenues of some of the world’s biggest energy traders, including Duncan’s own employer, Vitol. It was said that Duncan worked for a large energy trader in the interview, but did not mention his firm’s significant stake in the biggest oil project in Russia since the fall of the Soviet Union, one that Vladimir Putin has said will “strengthen Russia’s position in the Arctic”.
While most of the international focus on the energy industry’s links to Russia since the invasion of Ukraine has been on the major oil companies, including BP and Shell, major energy traders are now under mounting pressure over their links to Russia.
Vitol and Trafigura, two of the biggest oil traders, have stakes in Vostok Oil, a vast oil and gas oil project in the Arctic. Campaigners warn it will transform a fragile ecosystem into a sprawling industrial hub. It is estimated the project will tap into more than 6bn tonnes of oil reserves, with output proposed to reach more than 100m tonnes a year by 2030, more than the output of the North Sea. w.
It is one of Vladimir Putin’s key projects, described by the Moscow Times as “the biggest project in the modern-day global oil industry”. .
The scheme will take advantage of the melting Arctic ice, transporting oil across once unpassable shipping lanes via the Northern Sea Route to Asia, circumventing western sanctions.
The £110bn project is led by the state-owned Russian firm Rosneft, which is led by oligarch Igor Sechin. The UK government sanctioned Sechin, one of Putin’s inner circle, with an asset freeze and travel ban, earlier this month.
Vitol announced in October last year it had led a consortium that had taken a 5% stake in Vostok Oil, along with Singapore-based energy trader Mercantile & Maritime. Trafigura said in December 2020 that it had acquired a 10% holding in the project.BP said last month it would divest its 19.75% stake in Rosneft which it had held since 2013. Bernard Looney, BP’s chief executive, also stood down from the board of the Russian oil giant.
Russia is the world’s third-biggest oil producer after the US and Saudi Arabia. The US has banned Russian oil imports and Britain will phase them out by the end of this year.
Vitol and Trafigura now face questions over their links to Rosneft. Trafigura says it condemns the war in Ukraine; does not operate any assets in Russia; and is reviewing its options over its “passive shareholding” in Vostok Oil.
Vitol said: “Vitol is appalled and saddened by the unnecessary and unjustifiable loss of civilian life and the suffering inflicted. Vitol manages its business in full compliance with all applicable sanctions. Vitol has a small, passive and illiquid interest in an upstream asset controlled by Rosneft. Vitol does not have any directors or management in this asset. Funds relating to the transaction were paid in October 2021. No further payments are being made in relation to the investment. Whilst sanctions remain in place, no payments relating to the investment will be received.”
While sanctions do not ban trading in Russian oil, some of the biggest energy firms are reducing their reliance on the region. Shell bought a cargo of cheap Russian crude earlier this month, but later apologised and pledged to stop. An investigation of oil and gas shipments from Russian ports by the investigative website SourceMaterial this month found that since the invasion Vitol has loaded or was due to load seven cargos of oil products, some from Rosneft.
A report on 16 March by the International Energy Agency, a Paris-based intergovernmental organisation, said Vitol had chartered very large crude carriers to ship Russian crude to China from north-west Europe. The report said Indian Oil Corp bought 3m barrels of Russian urals oil from Vitol for May delivery, its first delivery since the 24 February invasion of Ukraine. Vitol has complied with all sanctions in these shipments.
Duncan was an oil trader in his early career and had a friendship spanning nearly four decades with Ian Taylor, the former chair of the Vitol group, who died in June 2020.
Taylor was a major donor to the Conservative party and Duncan unsuccessfully lobbied for him to be given a knighthood in David Cameron’s resignation honours. The recommendation was blocked by the honours committee after scrutiny of some of the questionable regimes where Vitol had done business.
The firm agreed with the US department of justice in December 2020 to pay $164m to resolve a foreign bribery case. This arose out of alleged Vitol schemes to pay bribes to officials in Brazil, Ecuador, and Mexico.
In his political diaries, In the Thick of It, published last year, Duncan reflected that he could have made his fortune with “many tens of millions in the bank” if he had joined Vitol in the late 1980s instead of opting for a political career.
He joined Vitol Services, a UK firm which is part of the group, as director of business development in January 2020, focusing on the Middle East and Pakistan, after resigning as a minister in July 2019 and standing down as an MP at the last election. A source close to Duncan said he had made it clear that he supported effective sanctions against Russia and he was not involved in any Vitol operations linked to the country.
Vitol, which has 40 offices around the world including London, Geneva and Rotterdam, said: “Vitol has in place long-term contracts with Russian entities which it is legally obliged to fulfil. All our business is conducted in strict accordance with applicable sanctions.” The company said it had not entered into any long-term contracts involving Russian oil since the invasion and its trading on the spot market had been significantly reduced and would decline further.
The firm said Duncan’s Today interview was conducted on a personal basis. It said: “It was not at Vitol’s behest and the company did not know about the interview until it aired.”
