Economy & Budget

Kremlin Oil Trading

If one thinks that Russian energy re-Sovietization is for some lofty goal such as protecting that country’s national security or managing its oil and gas crown jewels, better think again. There are very fat profits to be made and a lot of them appear to be channeled towards Kremlin cronies and points beyond.

Russia is currently producing 1.35 million tons (10 million barrels) of oil per day and, of this, 522 thousand tons (3.5 million barrels) per day is sold either under state-to-state contracts or through international traders. But trading in Russian oil is not for everyone and according to one Austrian entrepreneur, François Banchet “Today, you will not get close to the Russian oil, unless you have relevant connections in the Russian government.”

Le Monde wrote first about this in a major July story entitled “Geneva: Platform for Kremlin Oil.”. “The major traders of Russian oil in Geneva today and a number of entities, managed by Putin’s cronies, are turning over gigantic volumes of oil almost strangling the competition.” 

“The top trader in Russian oil, Gunvor Services SA, headquartered in the most prestigious banking area of Geneva, literally poached traders from a competitor, Addax, offering five times higher salaries than the going rate. The reason is that Gunvor has a constant need of highly qualified professionals due to its meteoric business expansion. The Gunvor client’s brochure says that the company has a turnover of 60 million tons (450 million barrels) of oil per year and revenue of $30 billion. Traditionally, traders have to fight daily for each contract, whereas Gunvor seems to have its own pipeline from the Kremlin, which allows them to trade as much oil as they want,” according to Le Monde.

Gunvor’s founder, 55 year old Gennady Timchenko, an ex-KGB agent, is said to be a close friend of Vladimir Putin from the 1990s. At the time when Putin was in charge of the Saint Petersburg’s municipal committee for foreign affairs, both practiced in the same judo club and lived in adjacent countryside houses. Timchenko — an average level businessman was buying oil products from Surgutneftegas adding commission and reselling those to the west via two offshore entities, one of which was Gunvor, incorporated in 1997. According to the same sources Timchenko moved to Collogny one of the most prestigious districts of Geneva, in 2001, registered a branch of his St. Petersburg’s “International Petroleum Products” and in two years opened Gunvor as a trading company. Interestingly, Timchenko’s name no longer appears in the list of founders.

Since 2004 Timchenko’s business skyrocketed as YUKOS’s Geneva trader, Petroval, started declining. In December 2004, with the knock of the court and auction gavels, YUKOS, top Russian oil producer at the time, lost its biggest oil production unit — Yuganskneftegaz — to a mysterious BaikalFinanceGroup and Timchenko is likely to have been one of its shareholders. Putin’s comments on the auction that: “people standing behind BaikalFinanceGroup are reputable people, who have been in the oil business for years” most likely meant Timchenko. The owners of BFG were never revealed in public, and Putin who was the only person that made that statement probably told the truth in referring to his old friend.

Rosneft, the biggest current Russian oil producer officially sells its barrels through tenders but most of the contracts go to Gunvor. Gunvor is also a preferred partner of Gazpromexport, which took over exports from Gazpromneft, Gazprom’s oil company, the ex-Roman Abramovich’s Sibneft, as described in the April ET. Thus, Gunvor acts almost as the official trader of Russia’s leading state oil and gas companies.

Apart from Timchenko’s Gunvor and International Petroleum Products there is a third Kremlin related trader — Energo Impex headed by Alexey Bogdanchikov (the son of Rosneft CEO), whose name disappeared from the company’s charter a few months after incorporation and five months later the company was renamed into Highlander International Trading, and its business has been growing  rapidly ever since.

The re-nationalization of the Russian oil industry brought billions of dollars revenue to President Putin’s associates. It was good for them to be in the right place at the right time, knowing the right man. It is also clear that behind the slogans of high-flying nationalist ideas and long-term Russian energy strategy offered to the Russian public there are very elementary, conventional and clearly shady and shadowy business interests very close to the center of power.

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