(Bloomberg) — Cargoes of an oil product from Russia are building up at sea as South Korean buyers turn cautious, highlighting how the invasion of Ukraine continues to impact flows more than two years after the war began.
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More than 2 million barrels of Russian naphtha, a building block for plastics, have been held in tankers for more than a week, with some in the waters near Oman, as of May 5, according to market intelligence firm Kpler. That’s up from a weekly average of about 790,000 barrels in January and February.
Petrochemical makers in South Korea — traditionally major buyers of the Russian product — are now shunning direct imports, and any cargoes with unclear origins, for fear of government scrutiny, according to traders with knowledge of the matter who asked not to be identified. That follows the launch in March of an investigation into naphtha imports by the country’s authorities.
Global energy markets — for crude oil, natural gas, and petroleum products — were upended by the invasion in early 2022 as some buyers shunned exports, flows were rerouted, and a web of western sanctions and price caps brought an extra layer of complication. Like most import-dependent economies, South Korea, and its refiners and plastics makers, have been forced to adapt.
Before the assault on Kyiv, Russia was South Korea’s top naphtha supplier. While direct flows dwindled after the war began, imports from nations such as United Arab Emirates, Malaysia, Singapore and Tunisia swelled, according to Kpler data. In March, however, South Korean authorities launched the probe to examine whether naphtha from Russia was being re-labeled.
Since then, imports from Mideast suppliers — such as Kuwait and Oman — have risen, according to Viktor Katona, an analyst at Kpler. At the same time, Russian naphtha flows to China and Taiwan have expanded, Katona said, noting shipments from Moscow accounted for more than half of Taiwan’s imports in April.
While South Korean refiners and petrochemical companies are allowed to import naphtha from Moscow, they need to comply with a Group of Seven price cap that bars access to western services if cargoes cost more than certain levels. Seoul isn’t a part of the G-7 but it has supported measures that the group imposed in an effort to punish Russia for the war.
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