As per the World Bank’s latest ranking data published at the beginning of July, despite the ongoing war, Russia has managed to transition from an upper-middle income to a high-income economy over the course of the last year, increasing its real and nominal GDP figures by 3.6% and 10.9% respectively, and raising the country’s GNI per capita by 11.2%. In addition to this economic expansion in 2023, the International Monetary Fund (IMF) has projected further growth for Russia throughout 2024. All of this comes in spite of Moscow’s all-consuming war effort in Ukraine – which has entered its third year already – and the swathe of sanctions which the United States, member states of the European Union and partner countries in the West have introduced, virtually closing all lucrative markets in the face of Russian exports.
Meanwhile, the Russian military continues to push ahead, with more than 130 clashes registered in a single day on the Pokrovsk front in eastern Ukraine in August, and along key supply lines to the Ukrainian frontline.
Its capacity to press on with its war of aggression is largely due to the continued sale of oil and gas, whose sales are underwriting a large portion of the war’s expenditures. This has and continues to take place with the help of a number of mechanisms facilitating Moscow’s circumvention or evasion of Western sanctions placed on such activities. These include Russia’s own ‘shadow fleet’ as well as a number of shell companies transporting and its crude via third countries like the United Arab Emirates and Saudi Arabia. Many of these companies have been set up by Western firms and businesspeople, such as the recently exposed Dutchman Niels Troost and his firm, Paramount Energy & Commodities SA, based both out of Geneva and the UAE.
In response to the wholesale targeting of Russian oil and gas exports in the West, Russia redirected much of its trade flows towards Asia, the Middle East and Africa, however this came at an important cost. The G7- and EU-imposed sanctions and oil price cap of $60 per barrel – which is much lower than current oil prices – mean that new customers in the developing world also have the opportunity to negotiate better prices due to a larger supply of Russian petroleum products in a tighter market. This has attracted profit oriented businesses and sole traders, hoping to benefit from the gap in pricing or Russia’s willingness to absorb some of the transportation costs.
Such profit minded entrepreneurs trading Russian oil via Western companies despite the way in which it supports Russia’s war effort, received international attention in the fall and later winter of 2023, when the United Kingdom sanctioned the mentioned Geneva-based commodities trader, Niels Troost, and his company, Paramount SA for evading sanctions placed on the trade of Russian crude. His sanctioning came after a thorough investigation conducted by both British authorities, as well as investigative journalists at the Wall Street Journal, Financial Times and Swiss investigative journalist platform Public Eye. Switzerland itself is also investigating the activities of the company, which wholly redirected its trade of Russian oil to its Dubai-based subsidiary firm of the same name, Paramount Energy & Commodities DMCC since February 2022, with the help of Troost associate (who is also sanctioned) Francois Edouard Mauron, when the war in Ukraine began and sanctions on Russia were announced.
Despite lower-than-usual profits, facilitating the sale of oil and gas, has been a vitally important lifeline for Moscow. As petroleum products remain the only source of steady revenues for the country, they are crucial in sustaining what has essentially become a Russian war economy. Economic growth in Russia more broadly is being spurred by its war in Ukraine and the number of industries, aside from energy, have shifted their production to support it. These include the construction and financial sectors – which both registered growth in 2023 – the weapons and military equipment manufacturing industries as well as the state’s continuous funneling of resources into the military to pay salaries.
In the face of most of the largest Western transportation companies refusing to carry Russian petroleum and even grain products, in addition to Western ports and insurance companies refusing to provide their services to entities under sanctions, Russia has looked towards its own fleet of carriers and any profit-seeking partner willing to aid in its trade of oil and gas as well as grain, such as Paramount and Harvest. Russia has used a fleet of more than 500 ‘dark tankers’ or ‘shadow tankers’, many of which are old and operating without insurance, making their tracking more difficult. In addition to this, a number of shell companies have been established in Panama, the Cook Islands and the Marshall Islands, which provided flagging for tankers as well as anonymity for their owners, who sometimes originate in Western countries.
In the first half of 2024, Russia’s revenues from the sale of its oil and gas increased by a staggering 41%, demonstrating the success of such strategies. While Russia’s primary export products were oil and gas even before the war, the reorientation of its domestic economy towards supporting its military offensive in Ukraine means that oil and gas sales are providing financial resources for a Russian economy that has become reliant on the war itself. This will likely solidify the new Russian approach to trading as well as the centrality of international partners willing and able to facilitate such trade for years to come. Writtten By Daniel Alexander
