The naive decisions behind NZ’s botched Russian oil sanctions

Saturday, 11 April 2026

ANALYSIS: As the conflict in the Middle East threatens global fuel supplies, New Zealand faces an uncomfortable truth about its sanctions on Russia.

Despite political rhetoric about standing with Ukraine, the country has never fully closed the door on fuel derived from Russian oil.

Instead, judgment calls that were never tested in Parliament left a loophole big enough for supertankers to pass through.

Understanding how that happened requires going back to the hurried legislation passed in the first weeks of the Ukraine war.

Read more:

• Iran War: Rethink of Russian fuel sanctions shelved as supply fears grow

• Winston Peters says drivers have right to know if petrol derived from Russian oil

• Z Energy won’t say if more shipments of refined Russian fuel en route to NZ

Start at the beginning

On March 9, 2022, just two weeks after Russia’s illegal invasion of Ukraine, the then Labour government rushed the Russia Sanctions Bill through Parliament under urgency.

It was a landmark piece of legislation as previously there had been no mechanism for New Zealand to impose sanctions on a country outside of the United Nations framework, where any action would be scuppered by Russia’s Security Council veto.

The act came into force two days later.

But the sanctions themselves were enacted through regulation ‒ so-called secondary legislation ‒ so didn’t need to be debated in Parliament, and were dribbled out in the following weeks and months.

What did they say about Russian fuel?

Regulation 14A of the Russian Sanctions Act prohibited anyone importing, among other things, an “oil product” of Russian origin into New Zealand either “directly or indirectly”.

Remember, the Marsden Point oil refinery had already closed by the time the regulation came into effect, so New Zealand wasn’t importing any crude oil by then.

So it is perhaps reasonable to assume that most people will have thought that the regulation was banning fuel refined from Russian oil.

But it didn’t?

Not according to the Ministry of Foreign Affairs and Trade.

It quietly issued a guidance notice in October 2022 stating that oil that had been refined in a “third country” would be regarded as “having the origin of the country undertaking the refining, for import purposes”.

In other words, if Russian crude had been exported to a refinery in Asia and turned into petrol or diesel there, it wasn’t really a “Russian oil product” and no sanctions applied.

Why did it do that?

It appears that at least some of the country’s five fuel importers made the “may contain traces of peanuts” argument to the ministry.

They warned it could be impossible for them to ensure absolutely no molecules of fuel refined from Russian oil entered the country, because of the way products could be mixed up in the supply chain overseas or during the refining process.

What was the Labour government’s take on this?

It is understood that Cabinet was under the impression that all fuel companies — Z, BP, Mobil, Gull and Timaru Oil Services — would be using their “best endeavours” to avoid such fuel, even if the ministry’s guidance note let them fill their boots, as it were.

But it didn’t work out that way?

Maybe it did, at first.

In April 2022, Z Energy’s then spokesperson, Haley Mortimer, told The Post it was “impossible to rule out that Russian crude is not included in the world’s current refined product stock given Russia is the second largest oil exporter in the world and that crude currently being refined may have been exported prior to the invasion of Ukraine”.

“We continue to work on a best-efforts basis with our suppliers to ensure that refined product doesn’t include Russian crude, but this can’t be guaranteed given there is no foolproof system to trace product flows through the entire supply chain,” she said.

BP and Mobil made similar comments.

And then?

In November, last year, 1News reported Britain’s Centre for Research on Energy and Clean Air (CREA) had found Z Energy had imported nearly $100 million worth of fuel refined from Russian crude over the previous year from a refinery in India associated with that trade.

CREA estimated those imports would have generated about $70m in tax revenue for the Kremlin.

For context, New Zealand’s total humanitarian assistance to Ukraine over the past four years has been worth $45m.

To be clear, Z’s imports were all entirely legal and above board, based on Mfat’s advice.

What did Z say about it all?

Not much. It appears likely it was its Australian owner, Ampol, that actually arranged the Indian fuel shipments. At the time of the 1News report its import practices were coming under a similar spotlight in Australia.

It would be fair to say there have been whispers in the market that Z was not the only importer that had benefited from Russian-derived fuel imports.

The other four importers were quick to confirm they were all fully complying with the sanction regime, and Mobil went considerably further in November by saying that all the fuel it had imported during the previous year was sourced from its own refinery in Singapore “that did not process Russian crude”.

But all those importers clammed up when The Post asked for further details.

And the Government?

Reading between the lines, it appears Foreign Minister Winston Peters hadn’t known about the Mfat guidance note, which was issued during the tenure of the former government, and may have been quite shocked by the 1News report.

Peters has been pretty staunch in his defence of Ukraine’s interests.

He said an “in-house inquiry” was under way on the sanctions regime and his office subsequently confirmed Mfat was reviewing the rules.

In December, he told The Post he believed drivers had a right to know if the fuel they bought was likely to have been derived from Russian oil, after Z Energy and the country’s four other bulk petrol importers had refused or failed to answer exactly the same question.

It is understood he expected the review would result in New Zealand following the lead of the EU ‒ and the stated intention of the UK ‒ by banning the import of fuels that had been refined from Russian crude.

The EU banned the import of fuel derived from Russian oil on January 21.

What happened to the review?

It was clearly killed off as a result of the United States and Israeli attacks on Iran.

The feeling seems to have been that New Zealand could not afford to close the door to Russian-derived fuel given the closure of the Strait of Hormuz and the absence of oil coming from the Gulf.

The ministry told The Post on March 17, 2½ weeks after the conflict began, that it was satisfied with the status quo.

“While we continue to monitor the situation, we’re confident our current settings remain appropriate,” it said.

It is safe to assume that was a government decision.

Although the country’s five bulk fuel importers have had the right to import Russian derived fuel all along, it is understood at least some had indicated ‒ after the Z Energy furore ‒ that they would not do so without the Government’s blessing.

In case there was any doubt, Finance Minister Nicola Willis told the New Zealand Herald later in March that it would not stand in their way.

So it’s open slather for Russian fuel?

As long as it’s refined outside Russia, so Mfat can argue it’s not really Russian, then yes.

Ukrainian drone attacks on Russian infrastructure in Ust-Luga on the Baltic coast have disrupted seaborne oil export shipments, but exports to Asian refineries continue.

Bloomberg reported on Wednesday that the bulk of those exports were going to China and India but that a large and growing proportion of Russian crude was on ships that had not declared their final destination.

That could make it more likely that more Russian crude will land up at refineries that New Zealand’s fuel importers more commonly rely on.

Could this have been handled better?

Mfat does not appear to have covered itself in glory.

It is understood to have advanced the argument to the Government that Russia would not benefit from New Zealand’s purchases of refined fuel derived from its oil.

That would appear unlikely.

International sanctions that cap the price of Russian oil exports are only partly functional and the assumption can only be that the larger the market for refined products derived from that oil, the greater the amount of money that will ultimately flow into Russian government coffers.

Similarly, the ministry’s October 2022 guidance note seems to have been proved to be naive, at best.

The expectation of the former Labour government seemed to be that fuel importers would use their best endeavours not to import Russian-derived fuel.

That begs the question of why, when faced with importers’ “traces of peanuts” argument, officials didn’t recommend the sanctions should be interpreted as requiring they use their best endeavours to avoid knowingly or negligently importing such fuel ‒ instead of essentially taking that on trust.

Whatever the mistakes of the past, the Government may be correct that many motorists will now be more concerned with filling their tanks than fretting over the source of their fuel.

But even if that is true, there appears no good argument why petrol companies shouldn’t be open about how much if any of their fuel is likely to have been derived from Russian crude ‒ as Peters has argued they should be ‒ so their customers know what they are buying and can make their own informed choices.