Pacific Money | Economy

Fragmented Trade and the Failure of Sanctioned Oil Isolation

The geopolitics behind how sanctioned oil continues moving through parallel trading networks despite efforts to curb its flow and what this means for global trading hubs like Singapore

The Russian invasion of Ukraine in February 2022 was met with sweeping sanctions from the G7 and the EU. Those sanctions have been in place for nearly four years already, with surprisingly little impact on Russian seaborne crude exports. New buyers from China and Africa have largely absorbed rerouted exports. Initially, oil revenues to Moscow declined after the implementation of the embargo. Exports to Price Cap Coalition countries, the group of countries that aligned to restrict Russian oil on global markets, dropped by 59.5 million tons. Yet, despite this, exports to non-Price Cap Coalition countries rose by an astounding 65 million tons. The outcome highlighted a broader geopolitical reality: Western control over shipping, finance, and insurance is no longer sufficient to fully constrain global commodity flows once alternative trading hubs emerged outside traditional regulatory reach. This underscores the ongoing fragmentation of global energy trade as a result of the impact of intermediary jurisdictions, with implications for Asian policymakers and maritime economies such as Singapore.

The disparity exposes a structural challenge to policymakers Western aligned nations. The reality is that Russian oil continues to be traded legally through a complex web of fragmented trading enterprises. Each step along the web essentially reconstitutes sanctioned oil into the market. Companies and ships transfer ownership of Russian oil across jurisdictions through what can only be defined as regulatory arbitrage, and the net effect of which, reintegrates sanctioned oil into global markets while ultimately returning revenue to Moscow.  Understanding this pattern is important for understanding the limitations of sanctions in an increasingly multipolar trading system, with commercial networks in place that extend well beyond traditional Euro-Atlantic regulatory frameworks.

Key trading zones with low regulatory oversight, like Dubai’s free zone, have allowed for commodities traders to continuously adapt to the G7 and EU’s price cap controls. The sanctions initially targeted shipping, financing, and insurance. In response, the use of a “shadow” fleet was employed. Earlier this year the FT revealed  this to be comprised of 1,065 vessels, alongside intermediaries facilitating the transport of almost 100-billion-dollars-worth of Russian, Iranian and Venezuelan crude oil to buyers across the world, using ships that lack up-to-date licensing, are able to manipulate GPS trackers and are generally uninsured. The adjustment to using a shadow fleet took roughly 18 months, but now exports have returned to near the original volumes of 2022.

Sanctions were subsequently structured on controlling specific Western trading nodes, but the role of shipping logistics is to find ways around such trade barriers. Dubai’s free zones have provided a major workaround for Russian oil. One such zone, the Dubai Multi Commodities Centre (DMCC), boasts many incentives for business growth, such as a 0% corporate income tax and flexible licensing options. These free zones have been instrumental in facilitating trade across the world and contributing to substantial energy market growth.

Before 2022, the DMCC primarily processed gold, diamonds, and agricultural commodities. After the war broke out, however, the trade of oil commoditiesincreased notably, according to the US Treasury. Low regulation, corporate opacity, and a separate jurisdiction from enforcement led by the G7 and its partners, all factors good for multi-national trade, suddenly became an opportunity for the regulatory arbitrage of Russian oil. By early 2023, an astounding 25% of identifiable Russian oil cargo buyers were linked to entities within Dubai’s free zones. That position has given Dubai growing geopolitical importance as an intermediary hub between sanctioned Russian producers and non-Western buyers. The development was also reflective of a broader shift of commodity trading activity toward Asia in light of significant demand growth and the need for commercial connectivity which would continue to shape global energy flows.

The business-friendly environment allows companies like Rosneft and Lukoil, which were critically sanctioned in October 2025, to find and quickly incorporate successor entities. For example, Lukoil quickly incorporated Alghaf Marine DMCC, obtained a trading license, but was soon sanctioned again. The rapid transition from Litasco Middle East DMCC to Alghaf Marine DMCC demonstrated how quickly sanctioned trading infrastructure could........

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