Vitol CEO sees Russian sanctions lasting ‘another 1-2 years’

Global trader Vitol expects it could still be years before the company returns to the Russian market, according to CEO Russell Hardy, who sees long lead times for EU sanctions rollbacks necessary for supply injections.

Traders have been responding to a US push for a quick end to the Russia-Ukraine war, hinting at the potential return of Russian energy supplies to the European market.

However, Hardy remains skeptical about timelines for widespread sanction rollbacks, including US and EU measures, needed to resume Vitol's Russian operations.

"In reality, we think it's going to be a year or two, so there isn't any anxiousness inside the organization about being ready," Hardy told delegates at the FT Commodities Global Summit in Lausanne on March 25.

"I think it's going to take a little bit longer than people anticipate, and it's going to be somewhat fragmented when those changes come," Hardy added.

Tentative progress

On March 25, the US said Russia and Ukraine agreed to a partial ceasefire protecting Black Sea shipping and infrastructure, in what appeared to be another step toward securing peace.

Yet, despite headlines suggesting progress in talks, market reactivity has faded, Hardy said, suggesting uncertainty over progress.

"The volatility has decreased. The rhetoric -- sanctions, tariffs, etc., is higher, but the reality is that the volatility is lower," he said.

Speaking at the conference, Helima Croft, Managing Director and Global Head of Commodity Strategy at RBC Capital Markets, agreed that even a firm decision to suspend sanctions could take time to implement.

"Things done by executive order can quickly come off," Croft said, adding that scope for other quick regulatory changes could be limited. "Even the Biden [sanctions] were done with a congressional overview process and would require a potential vote... that's not clear it's immediate. And then you've got the European sanctions."

Trader caution

Vitol, like many trading peers, had a major presence in Russia before the country's full-scale invasion of Ukraine in 2022, which saw the oil producer shunned by major trade partners.

Vitol suspended its Russian crude and products trading ahead of EU import bans in December 2022 and February 2023, continuing only a limited "essential fuels supply" to European players within the remits of the G7's $60/b price cap on Russian crude.

As rival traders plan potential returns, few have been willing to share expected timelines.

"US [sanctions] may be the first ones to get lifted from the noise coming out of the US. But there's the EU and UK," said Trafigura CEO Richard Holtum at the FT event. "You would need to see a wholesale winding back of all the sanctions before it's even something that could be considered."

Mercuria CEO Marco Dunand said the company would "absolutely" consider returning to Russia after sanctions waivers, without providing a timeline forecast.

Europe alone

In the event of a US sanctions rollback, European stoicism could prove ineffective or short-lived, experts have speculated.

Without US Office of Foreign Assets Control support to police 'shadow tankers' illegally ferrying Russian oil, European sanctions could effectively be undermined, said Alexander Gabuev, Director at Carnegie Russia Eurasia Center, speaking at the FT Summit.

If European sanctions remain the last barrier to Russian oil, their political popularity could be tested.

"Clearly there would be a lobby in Europe saying this is crazy, even the Americans are trading with them," said Gideon Rachman, Chief Foreign Affairs Commentator at the FT, calling Germany a potential danger zone.

For Russia, however, gas, not oil, is likely to be prioritized for early ceasefire concessions, Gunvor Chairman Torbjörn Törnqvist said, adding that "gas is key because there is no alternative. The gas produced in Western Russia has no way to go. It's shut in. So this is obviously a key ambition for Russia to try to restore that flow."

US Secretary of State Marco Rubio previously said European sanctions are likely to be considered in any peace talks with Russia. Conversely, the EU has warned against "hasty deals" and demanded their involvement in the peace process.

Platts, part of S&P Global Commodity Insights, assessed Urals FOB Primorsk crude oil at a discount of $14.30/b to Dated Brent March 25, slightly narrower than a $15.40/b discount the previous month.