Senate Foreign Affairs, Defence and Trade Legislation Committee, , 3:45:48 to 4:10:13
Witnesses criticize the perceived lack of political will to close refining loopholes and argue that tracking Russian oil origins is technically feasible.
Topics: Trade policy, National security
Speakers: Kateryna Argyrou, Andrew Mencinsky, Hon Sarah Henderson, Dean Smith, Jacinta Nampijinpa Price
Uh thank you very much, Senator Ciccone. Look, I have some questions. Um Miss and I wanted to refer to page two of your submission and the funding contradiction that you did highlight in your opening statement. And of course the the deputy chair was also asking about but you say while providing direct support to Ukraine, Australia has simultaneously enabled far greater financial flows to the Russian state through imports of fuel derived from Russian crude oil refined in third countries. In effect, Australia is sending more money to Moscow than to Kiev. That's a pretty damning and frightening situation as you put it. So, you've stated that according to the Center for Research on Energy and Clean Air, between the start of Russia's full-scale invasion of Ukraine in November 2025, Australia imported approximately, and I'll just use um Australian dollar figures, $24.7 billion worth of refined petroleum products from refineries in countries including India, China, and Brunai that process Russia Russian crude oil. These imports have generated an estimated $2.45 billion in direct tax revenue for the Kremlin. Given those alarming statistics, what do you say to the Australian government about the action that can be taken to shut down this flow of money to
>> Thank you, chair, for the question. So that um single paragraph and that single point is probably the most important uh from this entire inquiry in the opinion of the Ukrainian community. uh because um and and we knew that this was a problem um uh for over the past year, but until we had actual independent research from Korea that put numbers around it and they were able to track and trace uh those tankers leaving the Russian Federation, where they went to what refineries, what refineries and what countries were involved and to put a number around uh the potential financial impact that independent research um was something that we highlighted as a community and that is exactly what resonated with the Australian public because initially in our um engagement with um the Australian government at a federal level. We heard lots of reasons why the sanctions loophole couldn't be closed, why we couldn't why we couldn't put numbers around it, why it was too difficult to grasp what the um how severe the situation was and what were what were the realities that we were dealing with. So as soon as we had an independent think tank that had done all the research, put numbers around it, um then uh reasons like it's too difficult to track and trace for the Australian government all of the sudden became a very big question mark because you have an independent research think tank on the other side of the world that can not only track and trace, but they can identify where the flows are coming from, where they're going, how they're being refined, and what countries are importing them. And that's exactly what put Australia on the map in this entire um sanctions problem because after the EU um which is a block of countries, Australia was the single largest importer. So right away it started ringing alarm bells not only for our community but for the Australian public more generally. And so when when after that research was released uh the EU was quick to act in its 18th package of sanctions. they announced that they would be um stopping the import of refined Russian crude from third countries and then shortly after that the UK announced that they would be also closing that loophole and we'll be stopping the import of refined Russian crude from third countries. So then all of a sudden it was something that we started advocating with the Australian government saying look this is a significant problem world scale and something that will significantly move the dial in terms of support for a country that's fighting for the same values that Australia stands for. Um and the reasons that we heard why it couldn't be done all of a sudden started going away one by one whether it's tra track tracking and tracing whether it's you know we can't put a framework in place well Korea tracked and trace well the EU put sanctions in place the UK followed those are like-minded partners that we would hope that the Australian government would also take example from and work in the same direction to help uh shut that oil trade down and to stop providing the financing to to a a war
>> So in terms of your engagement and you have said that the response has been the excuses have started to dissipate. What engagement have you directly had with the Australian government on these on on this particular issue?
>> Um we advocate with directly with DEFAT with um the office of the minister for foreign affairs. Uh we are in regular contact. We appreciate the open dialogue. We appreciate the ability to bring our concerns forward. We try to work um in a collaborative way, in an open and transparent way. This is something that we've been raising as aside from military aid, which is our number one uh point that we always advocate with the Australian federal government. um this is the uh number the second number one issue that we've been advocating for in terms of sanctions and closing this loophole. So I think that the federal government is well aware um that this is a very big um concern for the Ukrainian community and um it's also been amplified by the significant media coverage um that this topic of importing of blood oil has received. So, I think that the federal government is well well aware of our concerns and we're trying to work collaboratively um to to find a solution and to assist in any way that
>> Australia, what has the Australian government told you or the foreign minister's office told you about why Australia can't follow the sanctions which are being imposed in the U by the EU and the UK in relation to third parties?
Um, Andrew, would you like to say anything about the previous question or should I
>> No, no, just answer this question.
>> Excuse me. Um, in terms of the feedback that we've received from the federal government, initially it was that it was uh impossible to track and trace. And then when the 18th package of sanctions came in, the feedback that we received was that um we need to wait until those uh sanctions are actually implemented. So they were supposed to be implemented in January 2026, which is at the beginning of this year. So the advocacy that we've been doing in the latter part of last year, uh was that uh we needed to wait until that framework was physically in place. And uh since January 26, since last month, we have not um engaged with uh the office further. We've been focused on uh this submission to to your Kennedy.
Well, we really do appreciate the the very comprehensive submission. Uh sorry, um u Mr. Machinsky, we could could I ask you?
>> Yeah. Yeah. So, look, I think I just wanted to say that some of the further um and I'm going to be maybe a slightly less diplomatic than Katarina and say some of the further excuses that we've received from DEFAST are around just the administrative complexity of doing so or also the the uncertainty of being able to prove that uh which the proportion of Russian oil that is entering Australia on any given tanker. So the argument that was put to me by a member of the pardon, I won't say who, he said, Andrew, this is like unscrambling an egg. How can we possibly work this out? Um if you yes, there may be Russian oil, but yes, there may not. So we we just don't know. So it really seemed to in my view fall back quite heavily on this it's just too hard bucket. And uh that was another excuse that we were given apart from the watching and waiting. It was well it's too hard anyway.
But in your view, it's clearly not too
>> Well, I think Katarina has quite clearly shown that a small group, a small team in Europe is able to do the full track and trace. And I think also common sense would say that if 50% of uh fuel entering a refinery is of Russian origin, that 50% of fuel exiting that refinery is of Russian origin. So um and that in itself is I think grounds to to stop that oil from entering Australia.
>> You know maybe if I can uh add to that uh from the community's perspective it's very simple. If um as Andrew said it doesn't matter whether it's five5 or 95% that's being scrambled in that egg. You have evidence that there's a for example Jamagar in India is a refinery that imports refined Russian crude. They are making money out of it. They're getting that Russian crude at discounted prices. The wealthiest Indian currently is the owner of the Jamnagar refinery. So that has to go and say towards the type of uh money that's being involved in this trade. Um, but if you have that refinery that imports refined uh that imports uh Russian crude, then it's very simple to stop importing from that refinery until they can prove that they no longer have Russian crude as the feed stock. And you may hear whether it's part of this um hearing today or in further um submissions that Jamnaggar for example can divide uh what's going for export in terms of other countries and what they are using for their domestic market. Well, in our view, in the community's view, it doesn't matter if um if a country is using it for their domestic use or for export. If you have a refinery that's dealing with a genocidal regime that is killing civilians on a daily basis, then there has to be some sort of ethical and moral grounds that you either deal with that company or you don't. It's the same as modern slavery or child labor. you can't say that the use of, you know, child labor is okay for a domestic market, but um it's not for an export market. So, I just want to make sure that that that's very clear that any refinery that uses uh Russian crude as uh as their stock should not be dealing with Australia and Australia should not be importing from them.
And what evidence do you know uh how much Russ what is your estimate of how much Russian crude is coming into Australia and and uh you've made you've reflected on a number of companies in your submission and and so you've said in your submission when you approach major fuel importers including BP Exon global AOL and Viva Energy. The response was we are operating in line with Australian law and then you go on to say but these companies have showed no willingness to further engage or address the concerns of the Ukrainian Australian community. Uh so what evidence do you have if any to suggest and are you suggesting that these companies are not operating within
Well, technically they are operating within Australian law because Australian law currently has a massive gap and a loophole in sanctions because technically the sanctions framework is there to stop import of crude from Russia and Australia does not import crude from Russia but they just go and do it via backdoor where they put a middleman in the middle, refine it in a third country and all of a sudden it's not Russian, it's still Russian. So whether you have that um middle uh laundrymat as um as some have referred to it um that launder this Russian crude and then exported as non-Russian um the origin is still the same and the money is flowing to to the Russian Federation.
>> So you want to see that refining loophole closed immediately and that will require legislative amendment. uh can you just take us through the other recommendations that you have made in your submission just briefly?
>> Yes. So um I wanted to focus on um oil and I think Andrew can jump in uh regarding frozen assets but I'll make just an overarching comment. If we're talking about doing the right thing, if we're talking about the Australian government setting a framework to make sure that Australia acts in line with our values, in line with the general public's expectations, then we need to look at this holistically. Today, we're talking about a massive loophole in a sanctions framework that allows the import of blood oil that goes towards killing innocent civilians on the other side of the world. But Russia has ways to spread and uh deal in many different ways. So today it's uh sending its crude and refining it in third countries and and trying to clean it up that way. Um but we're seeing evidence of uh Russia also in a in Australian financial markets. So if uh Andrew will talk about um frozen assets, but I just want to say that if we as Australian and and if we as the Australian government don't put the right frameworks in place, for example, with regards to investments, we currently have the future fund which manages public money investing in a company like Reliance for example that owns the Jamnagar um refinery that deals with this Russian crude. um then there certainly should be a stance that the Australian government takes from uh a responsible investment perspective that uh using public funds to invest in companies that enable uh the Russian war machine is not okay. Uh we also have public funds that are for example held um in TC corp which is the New South Wales um invest u investment arm New South Wales government investment arm and they are currently um a minority shareholder in a company called Euroclear which currently holds Russian assets. So this is something that the Australian government can exert its influence and h and take a stance holistically that we should not be trading with a country that is committing war crimes. There should not be any sanctions loopholes that allow um for indirect funding of this regime and in terms of investment of public funds and retirement savings uh that there should be clear ethical guidelines around that as well. Uh so those are my overarching comments but I think Andrew can go into more detail.
>> I would thank you Katarina. I would just like to just uh add just a touch more um about the topic of Jamnaga and refinery specific uh blockages. I have heard some announcements or pending announcements which some people are taking as being proof that you know this problem doesn't need to be solved is that the Jamnagard refinery will now you know bifocate and we'll send Russian processed oil uh to its domestic market and then and then sorry will send non-Russian oil to us. I think the issue is though is that we can't just rely upon that one refinery closing down its actions uh because Russian oil will still make its way into Australia. In 2022, Australian imports from of Indian oil constituted barely 1% of our supply. Now they constitute 8% of our supply because they've made their way through because they've been cheaper and I think there has been some level of windfall profits that's been made at some level. if the Jamnagar loophole were to be closed or I won't say that if Jamnagar were to stop I should say sending Russian oil to Australia that Russian oil will find its way to Australia via other refineries. So I think you may be hearing some evidence later that says hey there's nothing more need to be done here. Jamnagar which is importing its fuel to Australia Russian fuel to Australia is no longer doing so. We don't need to take further action. We do the loophole needs to be closed. So whether it's the Jamnagar refinery or any other refinery in any any other country in the world is absolutely prohibited from um using Russian oil in its feed stock and then shipping that So we just need it can't be at the refinary level is the point that I'm trying to make. Um it needs to be the regulatory level so it applies across all refineries worldwide.
>> Okay. Thanks very much Mr. Machinsky. I'm now going to move to Senator Smith. Senator Smith.
>> Uh, thank you very much and thank you for your submission and evidence today. Uh, just to be clear, are you arguing for the global prohibition on the refining of Russian crude? Or are you arguing only for a prohibition on the refining of Russian crude that may or will find its way to Australia?
>> Look, it would be great if all the countries worldwide would take a single stance and say uh Russia is a terrorist state. It's conducting war crimes on a daily basis. We cannot deal with the genocidal regime. Stop all business. that would be the ideal case. Um, but what we are here as a community arguing for is specifically regarding Australia that Australia can play its very big part in the stopping of financing uh of a state that conducts war crimes on a daily basis. And within Australian legislations and within the frameworks that can be set here, uh Australia has uh as a government the ability to put the right frameworks in place to limit and hopefully eliminate um the ability of the Russian Federation to uh feed its uh oil to Australia and earn money off
What's your level of awareness about what Australia has been doing in regards to engaging directly with Indian corporate leaders or Indian business leaders or indeed the Indian government to draw their attention to the fact that um this is a an issue gaining sort of more public attention in Australia. Australia to uh seek their ideas or considerations about what India may be able to to do in regards to this issue specifically in regards to Australia but sort of more generally um around you know Indian imports of Russian crude and refinery and refining and then export what's your level of awareness
What we know is what's been made public just from uh public coverage of this issue. We know that our foreign minister was in India. We know that there were discussions held at a political level. We know that Reliance um the company that uh operates in India and engages in a lot of refining to do with Russian uh crude oil as its feed stock. We know that conversations were had with their with them and um and what whatever's been made public. We're not privy to uh the exact conversations and uh the arguments that have been made there. uh but we are aware that discussions have been um had from the Australian government side and this is also a topic that is of great interest to the United States because there has been um quite a few headlines about President Trump also engaging with uh Indian politicians and specifically um covering this topic of them being such a large importer of Russian crude.
Um, thank you. Thank you.
>> Thanks very much, Senator Smith. Senator Nabaja Price,
>> and thank you for your contribution today. Um, you've pointed to gaps in uh enforcement and resourcing. In your opinion, is the core problem that Australia lacks the legal powers, the resources, or the political will to enforce sanctions, I suppose, effectively, or close the loophole as you've suggested.
At this stage, from where we're sitting, it would be option C, political will. Um, because uh it wouldn't require that much resources. Um the legal framework is something that the Australian politicians can put in place. Um we have seen other countries and uh partners do it. So in the opinion of the Ukrainian community, it just requires political will. Um this is something that the onus can be put on the corporates, it can be put on industry where they have to have full transparency of their supply chains just like they have full transparency of where their products are coming from with respect to modern slavery. There are rules, laws and regulations around modern slavery. Every company that I meet with, it's something that always comes up what steps they have taken, what actions um they have taken to ensure that there is no modern slavery in their supply chains and in their products. This is just a simple in our opinion as simple as that. The government puts um in place a framework which the corporates have to operate within. The onus should be on industry. the onus should be on them making sure that their uh supply chains are clear and clean of Russian crude.
>> I wholeheartedly support Katarina's view. Um the the community absolutely feels that it is an absence of political will and is very surprised by the absence. uh we have seen that other jurisdictions are able to handle the administrative complexity of this and we reject outright the the claim that well we can't do it perfectly so maybe we shouldn't do it at all uh there are many sanctions regimes that operate imperfectly for one of a better word without absolute 100% accuracy however what we have at the moment is insufficient and can be improved through as Katarina has pointed out um industrydriven ribbon uh checks on the origin of their oil. What is required is the will to do it and the effort to put those changes into law.
>> Thank you. That's all for me. Thank you,
Senator.