Oil Firms Warn Madagascar Plan May Spark Trade in Russian Fuel

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(Bloomberg) — A group of companies including TotalEnergies SE warned that Madagascar’s plans to nationalize fuel imports could put them and their customers at risk of trading and using sanctioned oil.

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The country’s parliament passed a bill on July 1 to create a state-run oil company that will oversee fuel imports, five weeks after Prime Minister Mamitiana Rajaonarison told Russian state-owned news agency Sputnik that an oil storage facility could be opened as part of a wider drive to secure Russian investment.

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Since Madagascar’s military seized power in an October coup, it has sought to forge closer ties with Russia. Colonel Michael Randrianirina, who led the coup and is now Madagascar’s president, met with Russian President Vladimir Putin in Moscow in February and has welcomed Russian military trainers and arms to the island. At the same time, Russia is looking for new markets for its oil, which has been sanctioned by the European Union and the US following its war on Ukraine.

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Madagascar only uses about one million metric tons of oil products every year, but the island sits on the Mozambique Channel, which facilitates the transit of nearly a third of the world’s seaborne crude shipments. Establishing a presence on the channel could help Russia open new markets across southern and eastern Africa.

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“Madagascar is simply too small a fuel market to justify this on commercial grounds alone,” said Shawn Duthie, the head of risk analysis for southern Africa at consulting firm Control Risks. “The real value is its geography: if Russia is investing in storage and logistics infrastructure, it’s likely thinking beyond domestic Malagasy demand and looking at its position for key Indian Ocean shipping routes.”

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The decision to nationalize oil imports ends a more-than 25-year-old arrangement with the industry body Groupement Pétrolier de Madagascar (GPM), whose members include units of TotalEnergies, Vitol SA, Rubis Energie SAS and Axian Group. Under that set-up, which followed the privatization of the oil industry in 1999, GPM oversaw the import tenders that permitted companies to sell fuel in the country.

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In a position paper seen by Bloomberg, GPM members expressed concern that the new state-run company “could source products from suppliers subject to international sanctions,” exposing its own members and their customers to those measures should they use the oil.

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“These products could become legally and commercially unusable for a significant proportion of distributors, logistics providers and customers.”

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It listed large customers that also operate in Western markets and could face problems should they have to trade in oil products from a sanctioned source. Those included Air France-KLM and other airlines, and international construction companies and mines owned or partly owned by Rio Tinto Group and Korea Mine Rehabilitation & Mineral Resources Corp.