WSJ Misinforms by Omission in Article on Oil Sanctions-Buster by Ignoring Dollars and SWIFT

A normally jaded reader uncharacteristically worked himself into a lather over a recent Wall Street Journal story, The Secret Oil-Trading Ring That Funds Russia’s War. As he put it, “I might expect this sort of off-the-mark piece from the New York Times. But the Wall Street Journal is supposed to be a business paper.” Proving his contention, an entire long story about an Azerbijani oil trader, Etibar Eyyub, who quickly set up the logistics to evade Western sanctions on Russian oil, never once mentions the dollar payment messaging system SWIFT, much the less presumed show-stopper of freezing Russia out of presumed must-have dollar payments system. In keeping, its only inclusion of the word “dollar” is wrong:

With Western buyers of Russian oil beating a retreat, Nord Axis and several other obscure firms were keeping the nation’s most important industry afloat by finding new places to sell the oil, generating billions of dollars in revenue for President Vladimir Putin’s war effort.

Help me. Russia is not getting dollars for these oil sales! How can an article on sanctions-busting not at least mention that Russia and its buyers managed to quickly work out payment arrangements that did not involve the dollar?

That is not to say that this account does not have some good tidbits, which we will soon highlight. But the exercise comes off like a bad McKinsey first progress review, where the team shows the client a lot of charts with data and graphs, showing they did a lot of work, without delivering much in the way of “so what?”s.

The article starts with the convention of trying to create human interest in its focus, Etibar Eyyub, without ever presenting enough about him to establish him as a character. We do learn that Eyyub was a former employee of and in recent years, a consultant to a company called Coral, an oil trader that had some dealings with Russian oil giant Rosneft. But Rosneft’s main oil export intermediary had been the trader Trafigura, based in Switzerland, which dropped Rosneft like a hot potato once the first round of sanctions were imposed.

The article explains that the role of these traders is to “find buyers, finance deals and arrange shipping.” Eyyub with astonishing prescience had set up some companies nine days before sanctions were imposed and used them to step into the Trifigura breach.

The story gets wrapped around the axle of how much the operation Eyyub quickly cobbled together is an affiliate of Coral, a Singapore-based company started in 2010 by another Azerbaijani, Tahir Garayev. The article alleges that Eyyub was Garayev’s #2 at Coral, without resolving the inconsistency that Eyyub left Coral in 2018 and was a consultant after that. Coral flatly denied that even Garayev has any current role. It stated (in a quote relegated to the very end of the piece):

She said Garayev hasn’t been involved in Coral management for more than a year. “Any efforts to directly or indirectly try to tie Mr. Garayev to Coral Energy is not reflective of the facts,” said the spokeswoman, who described Garayev as a “passive minority investor.”

Both Coral Energy and Garayev, she said, “unequivocally condemn the invasion of Ukraine and fully support and adhere to all applicable sanctions.”

The apparent reason for the fixation with Coral is that the company still does business with some Western companies and so Coral could be sanctioned if it were indeed part of this network selling Rosneft oil. The Department of Justice is on this case.

But all the Journal can point to is allegations of personnel wearing two hats, of working for Coral or perhaps more accurately with Coral and the new Eyyub entities including one called Nord Axis. According to the Kyiv School of Economics, Nord Axis and other Eyyub companies handled $33 billion of Russian crude and related exports in 2023, which was about 20% of the volume tracked.

But again, the article never explains that US authorities can do absolutely nothing to non-citizens of or visitors to the Russian oil sanctioning countries who also keep their commercial dealings out of the Collective West ambit.

The article also hand-waves about shell companies without going full Richard Smith in trying to untangle them, or even Louise Story, the New York Times reporter who impressively probed the foreign corporate owners of condos in New York’s Time Warner Center. She was able to follow some daisy chains far enough to identify some pretty certain money launderers and other unsavory types as ultimate owners. By contrast, this piece does not get far enough to even provide the customary yarn diagram of relationships.

This article seems unwilling or unable to mention the elephant in the room, that the Russian oil sanctions failed due to arrogance and a lack of imagination. The assumption was if the US denied access to our vaunted dollar network, how would anyone pay for the oil? Has no one at the Journal heard of famed traders with sanctioned countries like Marc Rich and Armand Hammer?

Similarly, the Collective West assumed that no one would ship oil without insurance, and that cutting off tankers carrying Russian oil from the London insurance market would mean no trading.

The article does usefully tell us, but only in passing and mainly well into the piece, how Eyyub dealt with that:

He cobbled together a fleet of aging tankers and disguised the trading by using a maze of companies registered in Dubai and Hong Kong, those people said….

By the summer of 2022, new oil revenue was pouring into Russia from Asian buyers who hadn’t taken sides in the war. Chinese, Indian and Turkish refineries bought most of the barrels.

We’ll stop here for a second. No where does the article mention that a substantial portion of the Indian refining was fuel-laundering, with the finished product shipped to Europe.

Back to the article:

But a new danger loomed: The U.S., in concert with the rest of the G-7 nations, was preparing sanctions that would attempt to cap the price of Russian oil. The idea was to keep Russian oil flowing to world markets to keep energy prices low, while crimping how much Moscow could earn.

The planned sanctions would allow Russia to continue using Western oil tankers and insurance companies, but only if it sold oil at or below $60 a barrel, substantially below benchmark prices. To sell crude at prices above $60 a barrel, Russia would need to build its own fleet.

We’ll again stop. Nord Axis allegedly handles 20% of Russia’s export volume. So 80% goes via other tankers. Alexander Mercouris, who like many upper class Greeks, has shipping industry connections, was extremely skeptical of the oil price cap scheme. He specifically mentioned that there would be ship owners willing and able to work around the restrictions. So it is not clear that a new fleet was necessary. Indeed, the article effectively confirms that a mere two paragraphs later:

The vessels joined what the industry calls the shadow fleet—hundreds of tankers with unclear ownership that move petroleum from sanctioned producers, often traveling without tracking transponders.

But Rosneft would no doubt greatly prefer to deal with fewer traders and a more stable fleet. so having his own probably did give Eyyub a competitive advantage.

Back again to the Journal:

Companies operated by Eyyub snapped up tankers, said people familiar with the activities of those firms and executives who sold the boats. European and Asian shipowners said those companies offered them generous prices for 25-year-old tankers destined for scrap.

Using both purchases and charters, firms run by Eyyub assembled more than 80 ships, one of the world’s largest fleets, said some of the people familiar with the deals. Brokers said more than $1 billion was spent to put it together.

So Eyyub bought old beater tankers and presumably also kept the transponders often off like other sanctions-evaders. Who’d have thunk it?

You’ll notice the article entirely skips over what was supposed to be another show-stopper, the loss of access to the London insurance market. Were the ships and their cargoes simply not insured? Did new providers in Russia or other non-sanction-participating locations like Hong Kong step in? Eyyub’s operation would otherwise bear the risk of the loss of the ship and oil in transit. Who ate that? Eyyub? Perhaps his client, Rosneft, at least took the risk of the cargo?

An interesting finding late in the story is that, on the back of the sanctions, Eyyub has moved further into the big leagues:

In July 2022, Trafigura announced that Nord Axis had purchased its 10% stake in Russia’s flagship oil-exploration project in the Arctic, called Vostok Oil. Eyyub and Garayev put together the purchase with Igor Sechin, a Putin confidante who leads Rosneft, said people familiar with the arrangement. Shipping and export data show Nord Axis began exporting large amounts of Rosneft’s petroleum.

A Trafigura spokeswoman said Nord Axis was an independent company. She said Trafigura’s due diligence determined that neither Nord Axis nor its beneficial owners were the target of any sanctions restrictions in effect at the time of the purchase.

Note that the article, continuing its obsession with Coral, points to Garayev, the Coral founder who is now only a passive minority holder, in a way a casual reader might see as insinuating that Garayev was part of Nord Axis. But the text only establishes that he helped broker and finance the deal. The fees on that were likely mighty juicy.

More important, Trifigura is a big enough player that it would not jeopardize its business by selling to a company that could be snagged in sanctions web. This is an indirect but pretty strong confirmation that Eyyub has succeeded in setting up Nord Axis completely outside the Collective West reach.

The article finally does not mention that what it would take to stop the oil trade would be Western piracy, or what might be more politely called gunboat diplomacy, as in seizing or sinking Russian oil-carrying vessels in either international waters or the national waters of those sanction-defying buyers like India and China. This would be a fast track to even more hostilities, as the Houthis are showing, and maybe also environmental disasters.

This is not a complete list of the shortcomings of this piece. For instance, even Wall Street Journal readers complained that its allegations about Eyyub and his purported fellow travelers were based entirely on anonymous sources. Even then, the Journal was unable to establish that Coral had any employees or executives that were involved in Eyyub’s new network. Common histories does not cut it.

It’s not clear why this piece came out as such a miss. Did the reporters become hostage to the agendas of the Department of Justice? Of unnamed Ukraine sources? Or was it simply that the editors thought too much time had been invested and it needed to go to print regardless? Either way, the Journal comes off as a useful idiot for the failed US oil sanctions.