The UAE’s standing as a leading energy trading hub is getting a boost as Western sanctions on Russian oil redraw energy trade routes:The country’s location, as well as its well-developed maritime ins. and shipping industries, have made it a hub for the transhipment of Asia-bound Russian oil. The UAE is now reaping windfalls from the new traffic in the form of shipping, ins., storage, and other fees — with Fujairah on track to becoming a major hub for oil exports.

How it all started: A price cap of USD 60 per barrel on shipments of Russian oil mandated by G7 countries and Australia has been in the works for some time and came into effect in February. The regulation seeks to curb revenues that Moscow can divert to its war in Ukraine while also ensuring relative stability in global oil supplies. The new rules meant that Western companies involved in the transport or ins. of Russian oil shipments priced above the cap risked being slapped with hefty fines.

Western insurers are staying safe: Despite the fact that Russia’s flagship Urals blend was trading below the cap when the regulation came into effect — and continuesto do so — Western outfits chose to give Russian oil exports a wide berth so as to not be caught out should the caps or mandates change. Given that the global maritime shipping and ins. industry is dominated by Western actors, Russia suddenly found itself without a supply chain to deliver its lucrative oil cargoes to customers in Asia.

Enter the UAE, which has well-developed maritime shipping and ins. sectors, and is not subject to Western price caps. “Shipping through the UAE helps Russian exports circumvent sanctions and the price cap by providing a route that avoids Western financial institutions and shipping companies,” Andika Akbar (Linkedin), an energy policy consultant at the International Energy Agency (IEA), told Enterprise. Akbar spoke to Enterprise in a personal capacity, noting that his statements are not representative of the IEA.

Location is key: The UAE is also conveniently placed as a pitstop halfway between Russian ports on the Black Sea and the Baltics and big buyers of Russian energy in Asia — most notably China and India.

The UAE and Russia have several methods for the export of Russian crude, an anonymous source in the industry told us. One method sees the UAE importing Russian oil for its domestic uses, and re-exporting its domestic production to the west, “making at least USD 15 per barrel margin,” the source adds.

As for riskier trade of Russian crude that is priced close to the price cap, Russia makes use of two shipping lines in Dubai — Fractal Marine and India-based Gatik — to haul cargoes of crude from ports on the Baltics and the Black Sea to the UAE, the source told us. Ins. for these shipments is provided by Russia’s state owned Russian National Reinsurance Company, the source tells us. The exact dynamics of how Russian oil gets in and out of the UAE remains a black box, however, with our source stressing that “we will never know” the full details of what goes on due to the sensitive nature of the topic.

Fujairah is crucial to the UAE’s oil hub ambitions: The UAE has its mind set on cashing in on the influx of Russian oil. “This includes increasing the capacity of the Fujairah oil hub and allowing trade using the AED,” Akbar says. He adds that the UAE’s state-owned energy giant ADNOC is carrying out upgrades at Fujairah that will see storage capacity at the port increase from 11.1 mn cubic meters to 42 mn cubic meters. These expansions, together with the increased traffic, will bolster Fujairah’s position as a “major crude oil hub in the Middle East, alongside Singapore and Rotterdam,” Akbar explains. The influx of Russian oil has already led to a spike in storage fees at Fujairah which reached record highs in 1Q 2023.

The rerouting is also a boon for Asia: Other big beneficiaries include India and China, which for decades had to contend with higher energy prices than Europe due to the so-called Asian premium. Traditionally, India and China’s high demand for hydrocarbons — as well as their remote location — placed them squarely as price-takers for oil exports from OPEC and accordingly had their shipments priced at a premium over Europe. The latest changes mean that Russian oil formerly bound for Europe is now diverted to Asia, thus lowering prices. The reduction in Asia’s energy bills could provide stimulus to their economies, according to a Reuters report.