Latvian blend: the backdoor that keeps Russian Oil flowing

The energy war of good oil vs bad oil has just begun. Any oil associated to Russia has now been termed bad over Moscow's unprovoked invasion of Ukraine, in the guise of what Putin calls a special military operation.

Since then, many countries have stopped buying Russian crude, while some are planning to boycott it in the international oil market, among which shockingly include economies whom studies reveal can't do without Russian oil because of the attendant risks involved.

Let's be clear here, it won't be easy to boycott Russian oil without throwing the global economy into turmoil. This is simply because countries well put economies need energy to thrive. However, many countries feel that evading Russian oil will help mount pressure on it to stop the senseless killings in Ukraine, while some say any attempt at that will put middle income and highly energy dependent countries in extremely tight corners; exactly what we have in Europe at the moment.

Angered by the preponderance of Putin's Moscow, the European Union - the world's largest trading bloc is currently proposing its sixth package of penalties against Russia. The latest sanction which includes a comprehensive embargo on Russian oil which aims at phasing out crude imports by Q3 2022, and refined products supply by the end of 2022, respectively. But not everyone seems to like the proposed idea, some of which are Germany, Hungary, Slovakia, and Czech Republic. They all find the idea a tough one, considering the special economic conditions which they are each in.

Furthermore, the EU commission is also preparing to bar European ships from carrying Russia crude and refined petroleum products to any part of the world. Again, another member country Greece is all out against the plan. This is so as over 40% of the ships plying the European waters are Greece-flagged and originate from there.

How then does the EU intend to have a unanimous walkthrough?

Although the patronage has now greatly reduced, since when the first sanctions were meted out to Russia over its special military exercise in Ukraine, importers were still accessing Russian oil without scrutiny. It's a different ball game entirely now. No company or refiner wants to be publicly spot buying Russian oil again. Anyone who does so is termed an ally of Putin or an accomplice to the killings of thousands in Ukraine.

As of now, despite being the world's second biggest exporter, and third biggest biggest producer of oil (after US and Saudi Arabia), according to the International Energy Agency (IEA), Russia has a tall energy inventory with so few secret buyers like China, India, and some EU countries. Though Putin is getting as much as 1billion Euros daily ( according to President Zelensky's chief economic adviser) from fossil energy sales to EU countries, he knows how unfunny things can get if the planned embargo on its oil from the EU goes on unhindered.

Of course, China and India will always be there to buy Russian crude but how much crude can they lift in the long run? Little, I guess, when compared to what was often the norm. Russia seems worried as to how to exhaust its already tall inventories and to keep its economy afloat amidst sanctions from left and right. Also, sometimes the position of a government may not be the outright position of a multinational or refiner who is operating in a particular country or domain. Let's say, a multinational or refiner is tasty for crude to refine but finds it difficult to do so because of an existing ban in a particular country. In such a case, the refiner must think out ways or backdoor to achieve its aim. Its in the light of the above circumstance that the Latvian blend comes into play. With it, Moscow has its way.

Though a controversial term as of late, the Latvian blend is simply and squarely a backdoor or workable strategy used by Russia to keep its discounted oil flowing out to buyers, or a strategy used by willing buyers of Russian crude in Europe and Asia without being called co-perpetrators of the killings in Ukraine. As a way of evading public scrutiny and sanctions, China, India and some multinationals are discreetly buying Russian oil this backdoor ( as reported by the Financial Times ).

In fact, India is seeking insurance cover and a further reduction in price of Russian crude (currently at $70 per barrel) to compensate it for the risks it is in buying Russian crude.

The Latvian blend is similar to the Malaysian crude or Singapore blend which was offered for sale in the Far East when Iranian and Venezuelan crudes were embargoed some years ago. The coming of Latvian blend makes it hard to stop the purchase of Russian oil which is being blended into a mixture with another crude type. In that state the blend can't be fully described as 100% and vice versa.

How does it come by?

The typical trade route begins at Primorsk, a famous Russian oil export town close to St. Petersburg, into Ventspils, a port in Latvia that has a large oil terminal and storage capacity where the blending actually takes place as well as other locations in the Netherlands and beyond ( The Washington Post).

In the oil markets the Latvian blend makes it possible for companies to say one thing publicly (phase out Russian oil ), and do another ( Russian oil) 😀

This favours Russia which has got more income through crude and petroleum sales to fuel the war in Ukraine.

Inasmuch as there are loopholes and backdoors like the Latvian blend, Russia will keep selling its crude and making more money. And this will be made easy because;

• Many economies can't do without energy,

• Russian crude - Ural is offered for sale at a much more discounted price when compared with international benchmarks like WTI and Brent.

Note however , that while the EU is taking effort to outrightly ban Russian oil - crude and refined, there's no consensus yet among EU countries on stopping Russian gas. Slovakia and Hungary won't join other EU countries to press the ban button by mid May but, will have until 2023 to take a step in that direction.

If there's anything you must learn from this analysis, it should be that the Latvian blend is proving itself to be an effective workaround to getting Russian oil out of Moscow to secret buyers in Asia, Europe, and else where.