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Alex Kimani

Alex Kimani

Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com. 

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Why Are Europe’s Biggest Commodity Traders Still Dealing With Russian Oil?

  • It’s seven weeks into Putin’s war in Ukraine, and while many of the world’s biggest companies have stopped doing business with Russia, a few seemed to have missed the memo.
  • According to ship tracking and port data, some of Europe’s biggest commodity traders have continued to lift large volumes of Russian oil.
  • As much as 80% of Russian raw materials are traded through Switzerland and its nearly 1,000 commodity firms.

It's seven weeks into the fastest-growing humanitarian crisis since World War II, and the war appears to have entered a new phase with no obvious route to end the conflict. Russian President Vladimir Putin on Tuesday called the war in Ukraine a "tragedy" but insisted that Russia had "no choice" but to invade its western neighbor. Putin added that economic sanctions imposed on his country have "failed," asserting that the Russian economy is steady despite the blows.

With some of its $630 billion in foreign currency reserves still accessible, it might take some time for Moscow to feel the full effects of western sanctions. But the country is bound to do so before long, with much of the world now opting not to buy Russian oil and gas. 

Oil prices and energy stocks are still trading at multi-year highs after international refiners adopted a self-imposed embargo, with many reluctant to buy Russian oil and banks refusing to finance shipments of Russian raw materials. Refiners and banks are unwilling to do business with Russia due to the risk of falling under complex restrictions in different jurisdictions. European Union Commission President Ursula von der Leyen declared in early March that the EU "must become independent from Russian oil, coal, and gas. We cannot simply rely on a supplier who threatens us." On March 8, U.S. President Joe Biden announced that the U.S. was "banning all imports of Russian…energy. That means Russian oil will no longer be acceptable at [our] ports, and the American people will deal another powerful blow to [Russian President Vladimir] Putin's war machine."

Unfortunately, for all the tough talk about abandoning Russian energy commodities, Russia is still managing to sell a good amount of its oil and gas thanks to some of the world's biggest commodity traders having little compunction about financing Putin's war machine.

According to ship tracking and port data, Switzerland's Vitol, Glencore, and Gunvor as well as Singapore's Trafigura, have all continued to lift large volumes of Russian crude and products, including diesel.

Indeed, Oleg Ustenko, economic adviser to Ukrainian president Volodymyr Zelensky, has written to the four companies demanding that they stop trading Russian hydrocarbons immediately since export revenues are funding Moscow's purchase of weapons and missiles. 

Switzerland's Golden Calf

A lot of the blame falls on Switzerland, with 80% of Russian raw materials traded via the Central European nation and its nearly 1,000 commodity firms.

Switzerland is an important global financial hub with a thriving commodities sector despite the country being far from all the global trade routes and without access to the sea;  no former colonial territories, and without any significant raw materials of its own. In fact, Oliver Classen, media officer at the Swiss NGO Public Eye, says that "this sector accounts for a much larger part of the GDP in Switzerland than tourism or the machinery industry." According to a 2018 Swiss government report, commodity trading volume reaches almost $1 trillion ($903.8 billion). 

Related: Oil Sands Financing From Canadian Banks Doubles

Deutsche Welle has reported that 80% of Russian raw materials are traded via Switzerland, according to a report by the Swiss embassy in Moscow. About a third of it is oil and gas, while two-thirds are base metals such as zinc, copper, and aluminum. In other words, deals signed on Swiss desks are directly facilitating Russian oil and gas to continue flowing freely.


Which definitely is a big deal considering that gas and oil exports are the main sources of income for Russia, accounting for 30 to 40% of the Russian budget. In 2021, Russian state corporations earned around $180 billion (€163 billion) from oil exports alone.

Again, unfortunately, Switzerland has been handling its commodities trade with kid gloves.

According to DW, raw materials are often traded directly between governments and via commodities exchanges. However, they can also be traded freely, and Swiss companies have specialized in direct sales thanks to an abundance of capital.

In raw materials transactions, Swiss commodity traders have adopted letters of credits or L/Cs as their preferred instruments. A bank will give a loan to a trader and as collateral, receive a document making it the owner of the commodity. As soon as the buyer pays the bank, the document and thus ownership of the commodity are transferred to him/her. The system gives traders more credit lines without their creditworthiness having to be checked, and the bank has the value of the commodity as security.

This is a prime example of transit trade, where only the money flows through Switzerland, but actual raw materials usually do not touch Swiss soil. Thus, no details about the magnitude of the transaction land on the desk of the Swiss customs authorities leading to highly imprecise information about the flow volumes of raw materials. 

"The whole commodities trade is under-recorded and underregulated. You have to dig around to collect data and not all information is available," Elisabeth Bürgi Bonanomi, a senior lecturer in law and sustainability at Bern University, has told DW.


Obviously, the lack of regulation is very appealing to commodity traders--especially those that deal with raw materials mined in non-democratic countries such as the DRC.

 "Unlike the financial market, where there are rules for tackling money laundering and illegal or illegitimate financial flows, and a financial market supervisory authority, there is currently no such thing for commodity trading," financial and legal expert at Public Eye David Mühlemann told the German broadcaster ARD.

But don't expect things to change any time soon.

Calls for a supervisory body for the commodities sector based on the model of the one for the financial market by the likes of Swiss NGO Public Eye and Swiss Green Party proposal have so far failed to bear fruit. Thomas Mattern from the Swiss People's Party (SVP) has spoken out against such a move, insisting that Switzerland should retain its neutrality, "We do not need even more regulation, and not in the commodities sector either."

By Alex Kimani for Oilprice.com

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Leave a comment
  • Mamdouh Salameh on April 13 2022 said:
    The question raised by the author on why Europe’s biggest commodity traders are still dealing with Russian oil could be confronted by another question of why not?

    If there is a global demand for a strategic and irreplaceable commodity like oil, there will always be buyers and traders. After all, the profit motive is the core of capitalism while greed is an integral part of human beings. Put the two together and we will get hundreds of oil traders and companies willing to trade with Russia.

    The massive sanctions against Russia are failing first because the Russian economy has been better prepared for them and second because Russia has something to sell without which the global economy could come to a standstill or collapse. And here I am referring to oil, gas, coal, wheat, precious metals, processed uranium, food materials and raw materials to name but a few.

    Moreover Russia has access to China, the world’s largest economy based on purchasing power parity (PPP) and the world’s biggest energy market and also to India the world’s third largest economy also based on PPP and scores of other countries who are prepared to trade with it.

    Companies like BP, Shell and Vitol who under political pressure decided to abandon Russia will be the biggest losers not Russia. Other than the huge losses they will sustain, they won’t be able to sell their stakes to non-Russian entities. Their stakes will be bought by the government and Russian oil and gas giants on the cheap.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

Leave a comment

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