Naphtha, Coal, and Compliance Gaps

There’s a saying in compliance circles: sanctions are only as strong as their weakest enforcement point. This week, I came across a compelling case of how global energy flows can blur the lines between legal trade and sanctioned exposure.

According to a new report, Taiwanese companies imported at least USD 5.3 billion worth of Russian naphtha and coal between March 2022 and July 2025. Is that a lot?

In raw terms, these imports accounted for 15–17% of Taiwan’s total imports of those fuels. But beyond the numbers lies a more strategic concern: exposure to secondary sanctions and tariff pressure, much like we saw in India’s case a few weeks ago.

Is This Legal?

Here’s the nuance: Taiwan has not banned imports of Russian fossil fuels. Legally, there’s no breach. But geopolitically, it’s a risky tightrope.

The EU, G7, and other sanctioning regimes have moved to cut off Russian energy revenues. Taiwan, as a key tech exporter and close partner to many of these jurisdictions, is increasingly expected to align. Instead, it occupies a grey zone, enabled by a gap in global enforcement.

Russian naphtha flows to Taiwan via India, Singapore, and South Korea, effectively masking its origin. Coal arrives more directly, often shipped straight from Russian ports. In both cases, the intent of sanctions is diluted, even if the law remains intact.

The Payment Blind Spot

One detail conspicuously absent from the report is how Taiwan pays for these fossil fuel imports. The choice of currency carries enormous legal and geopolitical weight.

If payments are routed in USD, they could technically pass through the US financial system, raising the risk of direct sanctions exposure. If settled in non-dollar currencies via offshore banks, the legal risk may diminish, but the diplomatic and secondary sanctions risk remains.

This lack of transparency also raises a larger concern: it becomes difficult for international stakeholders to assess the true extent of sanctions evasion risk without visibility into payment rails.

What This Means for Sanctions Professionals?

Some takeaways:

• Origin tracing matters: Products like naphtha may be refined or transshipped through multiple jurisdictions, obscuring the product’s origin.

• Re-export risk is real: Upstream exposure to sanctioned entities creates both regulatory and reputational risk, even if your direct counterparty isn’t sanctioned.

• Legal ≠ ethical: In a global sanctions landscape, your standards might need to exceed domestic law, particularly if you’re serving EU, UK, or US-linked clients.

And with rising political pressure, most recently President Trump calling NATO allies’ Russian oil imports "shocking" and pushing for broader coordination, the spotlight could easily turn to Taiwan.

Parting Thoughts

The decision of Taiwanese companies to continue imports of Russian fossil fuels does not look like a loophole.

It feels like a decision.

Energy security, price advantage, and industrial competitiveness appear to be outweighing alignment with the G7’s sanctions regimes. And while that may frustrate Western allies, Taiwan’s calculus isn’t hard to understand: why voluntarily give up access to one of the cheapest and most accessible sources of energy, especially when you're not legally obliged to?

Whether this stance is sustainable in the face of mounting US pressure, especially around secondary sanctions, remains to be seen. But for now, Taiwanese companies seem to be walking its own path, balancing economic interests against diplomatic expectations.

And that’s not a drift. That’s a strategy.

The source: Report

Thanks for reading.

Alexey