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May 21, 2019

Volume 3 Issue 3

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Is Russia Banning Lube Exports to Ukraine?

The Russian government last month banned exports of petrochemical products, including lubricants and slack waxes, to Ukraine. Some industry insiders called it worrisome for Russian lube suppliers while others said the rules are vague and do not clearly show what is embargoed.

The move is part of the tit-for-tat trade confrontation after Ukraine imposed economic sanctions on Russia in 2018 and again recently. Ukraine is a major consumer of Russian energy and petrochemical products such as lubricants, and experts said the ban might hurt Russia’s lube marketers and encourage more shipments to Ukraine from Europe.

Moscow originally passed a decree in December retaliating against Ukrainian actions. On April 18 it amended decree to ban exports to Ukraine of “lubricants and other high-temperature refined products.” The text of the amendment also lists a wide range of products such as bitumen and related products, used in petrochemicals, ethylene, propylene and butylene.

The ban takes effect on June 1.

According to the decree, base oils and industrial lubricants are excluded, and they can be shipped to Ukraine only with the permission of Russia’s Ministry of Economic Development.

“In my opinion, this is an incompetent step that can encourage development and production of motor oils and other lubricants made with the use of Russian base oils,” Oleg Tsvetkov, chief specialist at Topchiev Institute of Petrochemical Synthesis of the Russian Academy of Science, told Lube Report last week.

He added that if this ban takes full effect, “the Ukrainian market will be effectively closed for the Russian lubricant companies.”

Ukraine in 2018 imported 258,000 tons of lubricants and base oils, of which 161,000 tons were shipped from Russia, according to A-95 Consulting, a Kiev-based consultant in the Ukrainian petrochemicals industry. In Russia as well as in Ukraine, base oils are considered lubricants. Of these 161,000 tons of lubricants exported to Ukraine, a large portion were base oils. According to DYM Resources, Russia exported 117,000 tons of base oil to Ukraine in 2016, the latest year for which data isolating base oil is available.

The consultancy found that 80 percent of the lubricants that Russia ships to Ukraine are industrial lubricants and base oils, so when embargos takes effect, the market would only be short by 15 to 20 percent of the total Russian exports.

“Russian motor oils are in the medium- to lower-priced segment and can be replaced with their more expensive European counterparts. This could put some stress on the end users,” according to A-95.

Some sources believe that many marketers may find ways to circumvent the ban by re-exporting products to Ukraine via Belarus, similar to how European food marketers shipped their product to Russia after Moscow imposed an embargo in 2014 on food products from the European Union.

Tamara Kandelaki of InfoTek, a Mosocow-based consultancy, said that the decree text is ambiguous and not clear regarding what is banned.

“The code for synthetic [oil] is not listed in the assortment codes, which show which products are banned. In the regulative texts the motor oils usually go under the synthetic code, so the motor oils may be not covered by this ban,” she said.

Kandelaki added that an embargo on finished lubricant exports to Ukraine should contain substantive changes in the export duty code and “it cannot be done in such a short period of time.”