INTERVIEW: Western sanctions disrupt Russian diesel flows to Brazil

Recent Western sanctions could hurt Russia's capability of exporting clean petroleum products to Brazil in the short term, opening up trade opportunities for product tankers in the US and Asia, Milan-listed d'Amico International Shipping CEO Carlos Balestra di Mottola said in a recent interview.

Among some of their largest enforcement actions to undermine Moscow's war chest against Ukraine, the US sanctioned over 183 ships engaged in Russian trades in January, while the UK sanctioned 110 vessels and the EU sanctioned 189 in May.

With those rounds of sanctions covering dozens of ships used to ship gasoline, middle distillates and other CPPs, S&P Global Maritime Intelligence Risk Suite data suggests the number of sanctioned product tankers has reached 338.

"Russia might find it difficult to continue exporting the same quantities as it was exporting before, which would then create space for more exports from other locations on non-sanctioned tankers," Balestra di Mottola told Platts, part of S&P Global Commodity Insights, on the sidelines of TradeWinds Shipowners Forum Norway 2025.

The executive suggested Russian flows to Brazil, which has emerged as the No. 2 export market for Russia's clean products after the Ukraine war broke out in 2022, could be particularly prone to sanctions enforcement.

"Although the US sanctions are the ones which tend to be most respected, the sanctions imposed by the EU and UK are relevant because a lot of Brazilian companies have operations in Europe," Balestra di Mottola said.

Russia's CPP exports to South America's largest oil consumer, mainly diesel on MR tankers, fell from 266,000 b/d in March to 191,000 b/d in April and 185,000 b/d in May, according to S&P Global Commodities at Sea. This compared with 173,000 b/d in May 2024.

Trading dynamics

Russian diesel, when sold for no more than the G7 price cap of $100/b, could be transported by Western tanker operators legally, but DIS and many other players have refrained from trading in the OPEC+ member due to legal and reputational risks.

"It was better from a risk management perspective not to be involved in such trading," said Balestra di Mottola, adding that attestations from counterparties on cargo prices could be unreliable at times.

Instead, the company could look for more employment opportunities in the US Gulf, Middle East and India if Brazilian importers look for other suppliers to cover the shortfall, according to the CEO.

Another scenario is that Russia could divert its barrels to the East of Suez markets, and Asian refiners would in turn export more to the US West Coast whose refining capacity is falling, Balestra di Mottola added.

Russia could theoretically reduce its diesel prices to make the barrels more attractive. Platts assessed the US against all-origin ultra low sulfur diesel spread on a DAP basis in South Brazil at $3.07/b June 3, up from $0.88/b May 29.

Balestra di Mottola expects Russia to eventually rebuild its shipping capacity by working with shadow fleet operators, who will likely establish new companies to acquire old, non-sanctioned ships from mainstream firms in secondhand markets, like they have done in recent years.

"[Sanctions are] not very effective at the end of the day," Balestra di Mottola said. "They complicate the life of Russia, increase the cost for Russia to export its products. But eventually, the market rebalances."

Fuel choices

Against tightening EU and International Maritime Organization regulations on greenhouse gas emissions, DIS has also begun to a shift to alternatives to conventional, oil-based fuels to stay compliant.

With FuelEU Maritime rules coming into force from this January to mandate a 2% cut in the GHG intensity of marine energy in EU-related trades, the company has begun bioblend B30 trials for its existing fleet of over 30 product tankers, mostly MRs.

Balestra di Mottola said the company has also pooled its ships with another shipping company using fuels with lower GHG intensity than required, a mechanism allowed by Brussels, via a commercial arrangement but declined to provide further details.

On its order book, DIS has four LR1 tankers due to be delivered by Jiangsu New Yangzi Shipbuilding in 2027 that can run on methanol following simple retrofits, but Balestra di Mottola expressed concerns over fuel availability.

"It's not a good idea to have it as a dual fuel vessel [capable of being powered by methanol] upon delivery ... because we don't expect to find enough green methanol to be able to justify the investment," the CEO said, adding that cargo owners generally are unwilling to shoulder the decarbonization costs.