Business is booming.

South Korean motor lubricant exports to Russia surge after oil majors retreat

[ad_1]

Receive free South Korean business & finance updates

South Korean exports to Russia of motor lubricants that can be used in tanks, armoured cars and other military vehicles more than doubled last year, as Korean companies took advantage of their western competitors’ retreat from the market following Vladimir Putin’s invasion of Ukraine.

Motor lubricant exports from South Korea to Russia increased 116.7 per cent in 2022 to $229mn, according to Korean government statistics. The surge came after western oil majors including Total, Shell and BP voluntarily scaled back their Russian operations, including sales of lubrication oils used in vehicle transmissions and engines, following the outset of the war.

Russian import data shows that SK Enmove, a subsidiary of South Korean conglomerate SK Group, and GS Caltex, a joint venture between South Korea’s GS Group and US energy giant Chevron, were the two main Korean beneficiaries of the western companies’ exits.

Both companies denied that their products were being used by Russia’s military, claiming strong compliance standards among their local partners. There are no South Korean restrictions on exports of motor lubricants or engine oils to Russia. Neither company has been accused of violating sanctions.

Experts said it was all but impossible to verify that motor lubricants, which can be used for civilian or combat vehicles, were not filtering through to military uses.

“Any POL [petrol, oil and lubricant] product can have dual use — civilian or military,” said Patrick Donahoe, a retired US major general and former commander of the US Army’s Maneuver Center of Excellence. “Anyone selling POL to Russia is helping their aggression in Ukraine.”

Russian import records examined by the Financial Times show that SK Enmove and GS Caltex shipped about $2.8mn of engine oil to Russia in January 2022, prior to the full-scale invasion of Ukraine. Their volumes have since soared, reaching a peak of about $28mn in March 2023.

The data shows that SK Enmove now accounts for 6.5 per cent of Russian motor oil lubricant imports, with GS Caltex supplying just over 5 per cent.

“Korean firms can enter niche markets in Russia left by bigger international companies,” said Jeong Min-hyeon, head of the Russia and Eurasia team at the Korea Institute for International Economic Policy. “But realistically, I don’t think that Korean companies can control who can be the end users of their exports to Russia.”

GS Caltex, which makes the Kixx brand of engine oils, and SK Enmove acknowledged they had benefited from their competitors’ withdrawal from the Russian market but insisted they took precautions to ensure their products were not diverted for military use.

GS Caltex said there was “no chance” its products could be diverted to military use in Russia, adding that its “contract with a Russian private company contains clear rules on reselling of our products”.

“Due to the US and EU sanctions, they can’t sell our products to the military and our Russian subsidiary is well aware of the importance of this matter,” the company said.

Chevron, which withdrew its own lubricant and chemical products from the Russian market following the invasion of Ukraine, said it “does not comment on the business matters of our non-operated joint ventures, including GS Caltex”.

SK Enmove, which also acknowledged that its Russian sales had profited from its competitors’ exits, said most countries relied on local production of motor oils for military use to ensure a stable supply.

“Lubricants produced by Russian refiners are so low-priced that they command a large market share,” it said. “Our engine oil products are relatively high-priced that they are sold mostly for premium car users.”

A South Korean car parts trader who has exported lubricants globally said it was “ridiculous” for the companies to suggest they could track the end users of their Russian exports.

“A lubricant exporter claiming they know where their products end up is like a ramen exporter claiming they know who is going to eat their noodles,” said the trader.

A trade ministry official in Seoul said the country had export controls on “items that can be diverted for military use or weapons of mass destruction, but lubricants are like a commodity”. Imposing restrictions on motor oil could “take considerable time”, the official said.

[ad_2]

Source link