European Reliance on Russian Gas Persists Despite Sanctions

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• A British company, Seapeak, is legally transporting Russian liquefied natural gas (LNG) to Europe despite sanctions due to gaps in the regulations.
• The European Union still relies on Russia for approximately 15% of its gas, with Russia recently becoming the second-largest gas supplier to the continent.
• Legal experts are calling for the closure of these sanctions loopholes to prevent Russia from benefiting from the continued gas trade.

A British business that trades in Russian liquefied natural gas (LNG) by operating an “unusual ship”, has not been breaching the sanctions put in place after the Russian invasion into Ukraine.

An investigation by Sky News revealed that one of the largest owner-operators of liquefied gas vessels, Seapeak, has its headquarters based in Glasgow.

The company owns five LNG icebreakers including the Yakov Gakkel, which Sky focuses on. The skip can carve through ice enabling it to travel up into the Arctic Circle and back even in the depths of winter.

This allows the ship to travel back and back and forth between Siberia and Europe, through winter and summer, bringing copious volumes of gas from Russia to Europe.

Despite pleas from European leaders to decrease usage of gas, Sky reports that Europe is still depending on Russia for around 15 percent of its gas. As just last month Russia overtook the US to become the second biggest provider of gas to the continent.

When the war broke out in Ukraine, the European Union (EU), the UK and the US all applied a swarm of sanctions against the Russian Government, close friends of President Putin as well as companies that had close ties to him or his allies.

In the UK, the Office for Financial Sanctions Implementation (OFSI), which sits within the Treasury, was overseeing the UK sanctions list.

Companies, despite the prospect of penalties, have been struggling to keep on top of the sanctions, as 127 British companies admitted last November to breaching those new rules.

While companies try to weave through the sanctions lists across the UK, EU and US, the energy sector has been operating within the grey lines of the rules.

Along with wide-ranging sanctions, there were also price caps placed on shipments of oil, however, there were no controls put on liquefied natural gas. This means these fleets carrying LNG from Russia to each European country have not been breaching the Russian-sanctions.

As Paul Feldberg, Brown Rudnick partner and head of UK white collar defense, investigations and compliance explained: “While these sanctions create a web of prohibitions, they do not create a blanket ban on anything Russian or from doing business in Russia, so there will always be gaps.”

“Some of those gaps are deliberate, like the lack of a prohibition imports of Russian gas into Europe, as Europe is taking its time to wean itself off Russian Gas,” he added.

Barrister Patrick Upward KC from Church Court Chambers pointed out that “it is alarming that this trade in natural gas is being allowed to continue with abject disregard for the reasons and purpose of the sanctions that are in place in respect of oil.”

“While the UK Government had set in train an enquiry under the auspices of a Treasury Select Committee, this fell away with the announcement of the election. Some might think that the investigation should continue under the new government, but to what end?”

The senior barrister highlighted that “the empirical evidence is there, floating in plain sight, in vessels designed for one purpose, travelling between ports that enable the passage of Russian gas into Europe.”

“It must now be regarded as essential that the new government seize the opportunity to close these loopholes. If they cannot persuade the EU to join in, then they must penalise those enablers in London, who continue to take advantage of the lacunae in the current sanctions regime,” he added.

Some of those gaps are deliberate, like the lack of a prohibition imports of Russian gas into Europe, as Europe is taking its time to wean itself off Russian Gas

While Leigh Crestohl, partner, Zaiwalla & Co added that this case “shows in stark terms the enormous difficulties that arise in trying to apply a wide-ranging sanctions programme to a large economy which was well integrated into European supply chains.”

“Modern sanctions practice offers no precedent for sanctions measures against such a developed economy that played such a significant role in meeting Western energy needs,” he stated.

This comes after it was revealed that the British insurance industry has insured over €120bn worth of Russian oil since March 2022, resulting in calls from a former Cabinet minister for the sector to think on its obligations.

By City AM

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