How Libyan Smuggling Helps Russian Fuel Leak Into Europe

Article content

(Bloomberg) — Listen to Big Take podcast on iHeart, Apple Podcasts, Spotify and the Bloomberg Terminal.

In September 2022, a tanker called the Queen Majeda was stopped by authorities in Albanian waters, stuffed to the gills with $2 million worth of marine gas oil. The ship was coming from Libya’s port of Benghazi. And according to the Albanian authorities, the oil they were carrying was being smuggled out of the country illegally.

Article content

Article content

The Queen Majeda was just the tip of the iceberg of Libya’s $5 billion fuel-smuggling problem, Bloomberg’s senior global business reporter K. Oanh Ha discovered. She learned from the head of Libya’s audit bureau that as much as 40% of the fuel imported to Libya under a subsidy program in 2022 was smuggled out. And by tracking shipping data, Ha found that a lot of the fuel exiting through illicit trade originally came from Russia. The fuel then made its way from Libya into European countries that have banned Russian fuel imports.

In today’s episode, Ha unravels the mystery of the Queen Majeda — and reveals how Russian fuel flows through Libya to dodge European sanctions.

Read more: The Odyssey of the Queen Majeda

Listen to Big Take podcast every weekday and subscribe to our daily newsletter

Here is a lightly edited transcript of the conversation:

Sarah Holder: Hi, it’s Sarah Holder, host of Big Take. Today we’re bringing you a story that’s the result of a year-long investigation carried out by my colleague Oanh Ha.  It’s a story about a Libyan oil tanker named the Queen Majeda, a delivery that doesn’t go as expected — and an investigation that has global implications.

Article content

Oanh Ha: So the story really starts on September 8th.

Sarah Holder: September 8th, 2022. The Queen Majeda is docked in the port of Benghazi, where it’s spent the last few days being loaded up with fuel.

Oanh Ha: The captain himself has just been hired by the operator just a few months ago. And a lot of the crew are also new as well. What’s interesting is where they’re going is Albania, and they actually have been making deliveries to Albania already. They’ve had two successful deliveries, you know, and they’re saying this is the third delivery to Albania. It’s to the same buyer with the same paperwork. We shouldn’t have any problems.

Sarah Holder: The ship leaves Libya and spends the next four days crossing the Mediterranean to get to Europe.

Oanh Ha: It gets into Albanian waters close to the port of Durres and that’s when the captain says everything becomes a big surprise.

Sarah Holder: So what happens when the ship enters Albanian waters?

Oanh Ha: So the ship stops in Albanian waters near Durrës port, and they’re waiting for instructions to discharge. The captain says he notices a small vessel come toward the Queen Majeda. It turns out the small vessel is actually an Albanian Coast Guard patrol boat. And an officer, the Coast Guard officer, comes on board. The captain of the Queen Majeda says, you know, “I didn’t think anything was wrong. I served him tea as he looked through the paperwork,” and the, and he even said, you know, the officer told me, “Oh, don’t worry, this is routine. Nothing, nothing big.” But then about an hour later, the captain sees this bigger Coast Guard ship come, come alongside the Queen Majeda. And that’s when he knows something was very wrong.

Article content

Article content

Sarah Holder: So what did the bigger Coast Guard ship have to say?

Oanh Ha: So, so the bigger Coast Guard ship then comes alongside the Queen Majeda, and the investigators jump on board, and they find a ship that’s been loaded with fuel to the max, right. Um, they found that the ship’s ballast tank, which is normally filled with water to keep it stable, has been loaded with thousands of liters of fuel. And the ship is carrying paperwork, um, that says it was carrying fuel from Libya, from a Libyan authority called the Brega Petroleum Marketing Company. That’s an arm of the country’s state-owned national oil corporation. But the problem is that that paperwork, as our reporting showed, is fake.

Sarah Holder: The arrest of the Queen Majeda for alleged fuel smuggling would open so many questions for Oanh.

Oanh Ha: How big was this was this problem, where was the fuel coming from, what got it there? It was really a mystery.

Sarah Holder: A mystery that would bring Oanh around the world… from her home base in Hong Kong… to Albania and Tunisia. And it would follow how the capture of a Libyan tanker in Albanian waters opened a window on a $5 billion trade in smuggled fuel — much of it coming from Russia, around sanctions, and into Europe. I’m Sarah Holder, and this is Big Take from Bloomberg News.

Article content

Before we get into the rest of the story, it’s helpful to start with a primer on oil and gas in Libya.

Oanh Ha: So Libya is home to Africa’s biggest reserve of oil. So they’ve got all of this unprocessed crude, that can generate billions of dollars. And in fact, the oil industry is the main revenue generator for Libya. And it’s a, it’s a big oil contributor to the region and of course to the global market as well.

Sarah Holder: Even though Libya has these huge oil reserves, what it doesn’t have is the capacity to refine it all… and turn it into products like gas and diesel for cars, trucks and boats. So, for decades, the country has largely sold its crude oil abroad — and used the proceeds to import refined fuel.

Oanh Ha: What’s interesting in Libya is that, you know, since Muammar Gaddafi took over Libya in 1969 after a coup in which he deposed the king, there was a period of turbulence and violence and political instability, and there was a lot of repression and a lot of control. The population was very unhappy. And as a way to make the populace more happy and less discontent, um, he then, of course, offered all of these subsidies, including energy subsidies and food subsidies, those subsidies that happened in the 1970s, and those subsidies are still in place today.

Article content

Sarah Holder: And how cheap is the gas in Libya right now?

Oanh Ha: Gasoline is so cheap in Libya that it actually is cheaper than water. So, you know, a liter of fuel is actually cheaper than a liter of water. I mean, that’s, that’s how crazy it is.

Sarah Holder: Wow.

Oanh Ha: And in the end, they’re paying basically pennies. It’s essentially three cents for a liter of fuel. If you look at, of course, their neighbors and, and to Europe, I mean, in Europe, people are paying $2 a liter at the pumps. Obviously, there’s a big price differential there. And because of that, it’s a market that’s also ripe for fuel smuggling as well. 

Sarah Holder: Through her reporting, Oanh says she learned that fuel smuggling has been going on for decades in Libya. But in 2021, the government there started a program that has made the problem worse.

Oanh Ha: So in 2021, the government stalls on approving a national budget and there isn’t money allocated for the National Oil Corporation to import fuel for the country. So the then-chairman of the national oil company, Mustafa Sanalla, comes up with a program. It’s essentially a crude-for-fuel swap program in which Libya’s unprocessed crude oil is sold to these foreign energy companies and it’s exchanged for refined fuel. So the whole point of that program was to give the National Oil Corporation the ability to import fuel without having to use hard currency — cash — to pay for it. And the foreign energy companies at some point would, of course, settle their bill if they owed money in that transaction. So what we’ve been told, you know, the SWAP program — which by the way is legal, right? There’s nothing illegal about it, and it is used in other countries. What’s interesting about the SWAP program is it does make it easier in Libya to procure fuel without cash, but it also evades, you know, the scrutiny of the Central Bank and other government institutions.

Article content

Sarah Holder: Oanh says local and foreign officials have expressed a lot of concern over the program. One of them was Khaled Shekshek, the head of the Libyan Audit Bureau.

Oanh Ha: He was one of the few officials who actually welcomed us and really wanted to talk about fuel smuggling. Though everyone on the ground knows that fuel smuggling is a huge problem, no one really wants to talk about it and really be accountable for it. So Khaled Shekshek actually met us in Tunisia. He flew in with three assistants and he had all these — all this paperwork and he really wanted to share the problem of fuel smuggling in Libya. And I think for him, he says that he really wants it to stop because he sees it as a huge sap on Libyan’s resources. So, Shekshek told us that as much as 40% of fuel in the subsidy program is being smuggled. And you know, by those calculations, that’s about $5 billion in 2022. I mean, that’s a huge, huge number for a country like Libya.

Sarah Holder: Oanh says Shekshek pointed to the implementation of the crude-for-fuel swap program as a catalyst that’s taken the country’s fuel importing to a new level.

Article content

Oanh Ha: Once the crude-for-swap program starts in 2021, the fuel subsidy program just explodes. And the audit bureau says that the fuel program jumped by more than 70% to the equivalent of $12.8 billion in 2022. That’s 62 billion dinars. That’s a huge jump from 2021. And, you know, to put it in perspective, that’s almost half the national budget.

Sarah Holder: This has gone on at a time when the World Bank says Libya’s economy has actually contracted. So if the economy wasn’t growing and that fuel wasn’t being burned inside the country, why was the country importing so much more fuel, and where was it going? That’s after the break.

Sarah Holder: We’re back. Before the break, Oanh Ha was telling us about her conversation with the head of the Libyan Audit Bureau, and how longtime fuel subsidies and the introduction of a crude-for-fuel swap program have made fuel much, much cheaper in Libya than in nearby countries.

Oanh Ha: So fuel smuggling has been an entrenched problem in Libya. In previous years, there was a lot of fuel that was being smuggled inland in trucks to the neighboring countries. Um, there was a period of time where there was also fuel being smuggled by sea.

Article content

Sarah Holder: And then in February of 2022, Russia invades Ukraine.

Oanh Ha: And it causes this huge shift in the global market for oil and refined fuel products, right? Western countries, of course, respond by imposing sanctions on Russian oil and fuel products, because they want to thwart Moscow’s ability to raise funds for the war. The problem for Russia, of course, is that it’s now lost access to the United Nations countries and the EU had been the biggest market for Russia’s hydrocarbons. So now it’s having to basically look elsewhere to sell its oil and fuel products. So it’s looking to the Middle East, it’s looking to Asia.

Sarah Holder: And Russia found an interested buyer in Libya.

Oanh Ha: Because Libya doesn’t have any sanctions against Russian oil or fuel products. And so, there’s no reason why Russian oil and fuel cannot come to Libya.

Sarah Holder: And it really has come to Libya. Since the invasion of Ukraine, Russian fuel exports have surged more than tenfold.

Oanh Ha: I mean, it’s, it’s big numbers. It’s 2.5 million tons in 2023 from just 260,000 tons the previous year. And that makes Russia now the top exporter of all refined petroleum products to Libya. Um, and it, you know, took— edged out Greece. And it counts for about 28 percent of Libya’s total supply. What’s really startling is that that number was actually just 4 percent in 2021. What we’re finding out is that the oil and fuel that’s coming from Russia doesn’t stop there in Libya. We also know from the — from the paperwork that Libya then is exporting diesel, gas-oil, gasoline to countries, uh, in Europe that have imposed sanctions on Russian fuel. Countries like Spain and Italy, France, Belgium — these are all places that don’t accept Russian fuel, Russian oil. But because it’s coming from Libya, it’s finding a loophole to get into those countries.

Article content

Sarah Holder: And it’s moving on ships… ships like the Queen Majeda. After the Queen Majeda was detained in September 2022, the crew spent six months in an Albanian jail… and they’ve since been on house arrest on the ship.

Oanh Ha: The crew, uh, this week actually were charged with trading and transporting smuggled goods. And the prosecutors there asked for a five-year prison sentence.

Sarah Holder: And what about the owner of the ship? Has he been charged with anything?

Oanh Ha: At this point, Nuri Eldawadi, the Libyan businessman who owns the ship, has not been charged.

Sarah Holder: So how is the head of the National Oil Corporation responding to the investigation?

Oanh Ha: So, Farhat Bengdara is the chairman of the National Oil Corporation. And he said in an email to me that fuel smuggling is a huge problem, but that he couldn’t provide an estimate for the scale or put a rough dollar amount to what’s being smuggled. You’ve also got the Prime Minister Dbeibah in Libya saying that he, his administration really wants to look at lifting and ending the fuel subsidies. And he’s right now polling Libyans on a proposal that would end the subsidy program and instead give Libyans a lump sum amount or coupon of some sort that they can use to buy fuel. So the question is, how is that going to resolve itself? Is there political will to really end the subsidy program? And how would you meet the legitimate need of poor people in Libya who do need access to cheaper fuel? If you end the subsidy program. It’s a hard, difficult problem. Um, and our sources say it’s probably not likely going to be resolved anytime soon.

Article content