Shell Bought Russian Oil at the Biggest Discount on Record — Plans to Donate Profit

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Mar. 7 2022, Published 8:35 a.m. ET

Crude oil prices have spiked amid Russian President Vladimir Putin’s invasion of Ukraine. Oil prices are now threatening to breach the all-time highs that they hit in 2008. Meanwhile, there are reports that global energy giant Shell plc bought Russian oil at a discount. Did Shell buy crude oil from Russia? Is it legal to buy Russian oil amid the sanctions?

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Several Western companies have been exiting Russia after Putin’s indefensible invasion of Ukraine, which was done under fictitious pretexts like “denazification of Ukraine.” Also, after the country’s clampdown on media coverage of the Ukraine war, several global media outlets have exited Russia.

Most companies are shunning Russian oil.

Several companies have been shunning Russian oil amid the Ukraine war. Also, there's widespread support for the Ukrainian cause around the world, and workers at U.K. docks have been protesting against unloading Russian oil.

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Is it legal for companies to buy oil from Russia?

So far, the Western sanctions on Russia have conspicuously avoided targeting its oil and gas sector. Germany, which relies on Russian gas to fuel its economy, came the closest by delaying the approval for the Nord Stream 2 pipeline.

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The sanctions have been mainly targeted at Russian oligarchs and banks. Also, some of the tech exports to Russia have been banned. Currently, it's legal to buy oil from Russia but the buyers might need a workaround for payments given the sanctions on several Russian banks.

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There are reports that Western countries plan to impose sanctions on Russian oil exports. However, countries might be wary of such steps given the already high crude oil prices that are fueling inflation.

Did Shell buy oil at a discount from Russia?

The Wall Street Journal reported that Shell bought 100,000 metric tons of crude oil from Russia. The energy giant bought the oil at a discount of $28.50 per barrel. While it isn't unusual for oil-exporting countries to give buyers a discount, this is the biggest discount on record.

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Shell has defended buying Russian oil.

Shell has defended buying Russian oil and argued that its refineries require some oil from Russia to keep running. In Shell's statement, it said, “Without an uninterrupted supply of crude oil to refineries, the energy industry cannot assure the continued provision of essential products to people across Europe over the weeks ahead.”

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The London-listed energy company added, "Cargoes from alternative sources would not have arrived in time to avoid disruptions to market supply."

Russia is a major player in the global energy markets. With a daily production of 11 million barrels, it's the third-largest producer globally. Russia's oil exports are between 5 million barrels per day and 6 million barrels per day and it isn't easy to make up for Russian oil, at least in the immediate term.

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Shell might face boycott calls for buying Russian oil.

Anticipating any calls for boycott, Shell has said that it would give the profits from the Russian oil to a fund working on humanitarian aid in Ukraine. Shell also said that it would follow governments' guidance on energy supplies.

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In February, Shell said that it intends to exit the partnerships with Russian company Gazprom. BP, another London-listed energy company, has also announced that it's offloading its stake in Rosneft, the Russian state-owned energy giant.

As expected, Ukraine has lashed out at Shell for buying Russian oil. Ukraine’s Foreign Minister Dmytro Kuleba asked Shell, “Doesn't Russian oil smell of Ukrainian blood?” Ukraine has been calling on companies to cut all ties with Russia. In commodities like aluminum, energy, wheat, and palladium, it might not be easy to replace Russian supplies in the short term.

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