The United Kingdom has issued a licence that permits the importation of diesel and jet fuel produced overseas from Russian crude oil, under a sanctions carve-out designed to alleviate the financial burden on households and airlines. This decision comes as fuel costs continue to climb, driven largely by the ongoing conflict in the Middle East and disruptions to global supply chains.
Background of the Decision
The move mirrors a similar action taken by the United States, which on Monday, May 18, extended a sanctions waiver allowing the purchase of Russian seaborne oil to support energy-vulnerable nations facing supply disruptions. These disruptions are linked to the war in the Middle East and the closure of the Strait of Hormuz, a critical chokepoint through which approximately 20% of globally traded oil passes.
Critics of the US decision argue that extending such waivers enables the Kremlin to boost its revenues and continue funding its military campaign in Ukraine. Since Russia's invasion of Ukraine in 2022, Western sanctions have aimed to curtail Moscow's energy income, yet Russian crude continues to reach international markets, often via intermediaries.
Market Impact
Brent crude oil was trading around $110 per barrel on Tuesday, near recent highs, reflecting ongoing concerns about disrupted flows through the Strait of Hormuz, according to Reuters. Soaring fuel costs have rattled the global economy and placed immense pressure on the aviation industry, where jet fuel prices have surged dramatically. Fuel can account for as much as a quarter of an airline's operating expenses, prompting carriers worldwide to raise ticket prices, reduce capacity, and issue cautious profit warnings.
In the UK, rising fuel costs have exacerbated the cost-of-living crisis, as the government struggles to address inflation and energy affordability while trying to ease the burden on consumers.
Details of the Licence
The licence, issued on Tuesday, May 19, grants exemptions for fuels processed in third-party countries but imposes conditions, including record-keeping obligations for businesses. The new regulations take effect on Wednesday, May 20 and will remain in place indefinitely. However, the government confirmed in an official notice that the licence will be subject to periodic reviews and may be altered or withdrawn.
Additional Measures
In a separate development, the UK also issued a time-limited licence on Tuesday covering the maritime transportation of liquefied natural gas from Russia's Sakhalin-2 and Yamal projects, along with associated services such as shipping, financing, and brokering, under Russia sanctions regulations. This licence is valid until January 1 next year.
