Sanctions: How a Global Parallel Market for LNG is Developing Despite Restrictions

With increasing sanctions against Russian LNG, an evasion ecosystem is emerging in various global hubs, fostering transactions in local currencies and a parallel trade network.

Share:

Economic sanctions imposed by the United States and the European Union (EU) against Russian liquefied natural gas (LNG) have encouraged the creation of new trade channels outside the traditional financial system. Faced with regulatory constraints, commercial hubs in Asia and the Middle East are emerging to support a parallel trading market, thereby escaping Western oversight.

A Growing Commercial Ecosystem

Centers like Mumbai, Dubai, and Hong Kong play a central role in this parallel market, facilitating LNG transactions in local currencies such as the yuan. These hubs enable companies from sanctioned countries, particularly Russia and Iran, to create escrow accounts to receive payments, often in the form of barter or manufactured goods. Alexey Eremenko, associate director of Global Risk Analysis at Control Risks, explains that this trend resembles older smuggling networks but is adapted to meet the modern demands of energy trade.

This evasion network takes inspiration from similar models in oil trading, where blending and relabeling operations have allowed circumvention of restrictions. In Iran, Indonesia, and Malaysia, deep-water ports serve as transit points for these operations, providing effective coverage from regulatory scrutiny.

Regulation and Sanction Capacity Limitations

U.S. and European authorities are intensifying their surveillance measures to limit the expansion of these parallel markets, but their capacities remain limited. The U.S. Office of Foreign Assets Control (OFAC) has about 200 employees, insufficient to handle the complexity of this global parallel trade. Recent sanctions, which require banks to monitor potentially illicit transactions, have increased the effectiveness of enforcement, yet workarounds remain feasible.

The U.S. strategy is based on a balanced approach that avoids excessive pressure on third countries, such as Malaysia and the United Arab Emirates. Pressuring these countries into an adversarial position could risk drawing them closer to Russia or China, with broader geopolitical implications.

Rise of Local Currency Transactions

One notable consequence of these sanctions is the gradual abandonment of the U.S. dollar in Russian LNG exchanges. A report by the European Bank for Reconstruction and Development indicates a significant increase in yuan transactions for commodity exchanges. Russia, the world’s fourth-largest LNG producer, could thus intensify its exports in local currencies, reinforcing the structure of this parallel market.

Implications for Global Energy Markets

The evolution of this parallel market also affects global energy markets, where differentiated prices appear depending on jurisdictions and regulations. While some countries, like China and India, purchase discounted Russian LNG, these economies protect themselves from sanctions by using transaction mechanisms outside traditional financial channels.

Recent developments show that these local currency transactions are not only a means of circumventing sanctions but also an economic strategy for certain countries. Depending on geopolitical events and changes in international policies, the importance of these parallel markets could grow, with notable impacts on the global LNG market and the energy policies of the countries involved.

The commissioning of LNG Canada, the first major Canadian liquefied natural gas export facility led by Shell, has not yet triggered the anticipated rise in natural gas prices in western Canada, still facing persistent oversupply.
Horizon Petroleum Ltd. is advancing towards the production launch of the Lachowice 7 gas well in Poland, having secured necessary permits and completed preliminary works to commence operations as early as next August.
European Union member states have requested to keep their national strategies for phasing out Russian gas by 2027 confidential, citing security concerns and market disruption risks, according to a document revealed by Reuters.
TotalEnergies becomes a member of PJM Interconnection, expanding its trading capabilities in North America's largest wholesale electricity market. The decision strengthens the company's presence in the United States.
Turkey has connected its gas grid to Syria’s and plans to begin supplying gas for power generation in the coming weeks, according to Turkish Energy Minister Alparslan Bayraktar.
Despite record electricity demand, China sees no significant increase in LNG purchases due to high prices and available alternative supplies.
US natural gas production and consumption are expected to reach record highs in 2025, before slightly declining the following year, according to the latest forecasts from the US Energy Information Administration.
Naftogaz announces the launch of a natural gas well with a daily output of 383,000 cubic meters, amid a sharp decline in Ukrainian production following several military strikes on its strategic facilities.
Sonatrach and ENI have signed a $1.35 billion production-sharing agreement aiming to extract 415 million barrels of hydrocarbons in Algeria's Berkine basin, strengthening energy ties between Algiers and Rome.
Maple Creek Energy is soliciting proposals for its advanced 1,300 MW gas project in MISO Zone 6, targeting long-term contracts and strategic co-location partnerships with accelerated connection to the regional power grid.
VMOS signs a USD 2 billion loan to finance the construction of the Vaca Muerta South pipeline, aiming to boost Argentina's energy production while reducing costly natural gas imports.
According to a Wood Mackenzie report, Argentina could achieve daily gas production of 180 million cubic metres per day by 2040, aiming to become a key regional supplier and a significant exporter of liquefied natural gas.
Côte d'Ivoire and the Italian group Eni assess progress on the Baleine energy project, whose third phase plans a daily production of 150,000 barrels of oil and 200 million cubic feet of gas for the Ivorian domestic market.
The extreme heatwave in China has led to a dramatic rise in electricity consumption, while Asia records a significant drop in liquefied natural gas imports amid a tight global energy context.
E.ON, together with MM Neuss, commissions Europe’s first fully automated cogeneration plant, capable of achieving a 91 % fuel-use rate and cutting CO₂ emissions by 22 000 t a year.
Facing the lowest temperatures recorded in 30 years, the Argentine government announces reductions in natural gas supply to industries to meet the exceptional rise in residential energy demand across the country.
Solar power generation increased sharply in the United States in June, significantly reducing natural gas consumption in the power sector, despite relatively stable overall electricity demand.
Golden Pass LNG, jointly owned by Exxon Mobil and QatarEnergy, has asked US authorities for permission to re-export liquefied natural gas starting October 1, anticipating the imminent launch of its operations in Texas.
Delfin Midstream reserves gas turbine manufacturing capacity with Siemens Energy and initiates an early works programme with Samsung Heavy Industries, ahead of its anticipated final investment decision in the autumn.
Norwegian group DNO ASA signs gas offtake contract with ENGIE and secures USD 500 million financing from a major US bank to guarantee future revenues from its Norwegian gas production.