Australia has sanctioned Russian oil, but third nations such as India and China still buy from Moscow, and splice it in domestic refineries before shipping it to Australia.
Ukrainian Council of NSW president Andrew Mencinsky branded it "blood oil", saying while Australia had announced $1.7 billion in aid for Ukraine, there was $2.5 billion flowing back to the Kremlin through oil purchases.
"This is appalling, it's shocking, it's unjustifiable and it's unacceptable to every person to whom I speak. This has to stop without a ban on such products," he told a hearing into Australia's sanctions regime against Russia on Wednesday.
Of nations that had sanctioned Russian oil, Australia was the largest buyer of refined fuel in 2025, EU-Russia analyst Vaibhav Raghunandan said.
"Australia therefore holds a unique position of being able to further constrict Russian revenues from crude by banning this trade," he said.
Spliced oil in third nations was hard to track and its origin couldn't be reliably determined, according to the Department of Foreign Affairs.
"Russia's large share of the global oil supply and the mingling of oil products makes eliminating the revenue Russia gains from these sales a complex challenge," first assistant secretary Christian Hirst said.
Australia was considering options on how to limit Russian crude oil via third parties, including by monitoring Europe's sanctions on refined oil and how the UK would implement its upcoming ban, Dr Hirst said.
Australian officials in India were working with industry on Russian oil being blended during refinery, he added.
International research tracked where Russian oil was being sent, meaning tainted refineries were identifiable, Australian Federation of Ukrainian Organisations chair Kateryna Argyrou said, urging a ban on any amount of Russian oil.
"Whether you have that middle laundromat, as some have referred to it, that launders this Russian crude and then exports it as non-Russian, the origin is still the same, the money is flowing to the Russian Federation," she told the hearing.
The onus should be on industry to ensure their supply chain was clean, just as corporations need to do under modern slavery laws, she said.
Australian Institute of Petroleum chief executive Malcolm Roberts said members would assist if sanctions were extended to third countries, but any new rules needed to ensure fuel security and include a trigger for importers to reopen term contracts.
There could be a price spike due to extra shipping costs if importers had to get more oil from the Middle East or Africa, rather than nations like India, he said.
"We're hoping to persuade our suppliers that because of community issues, and possibly changing government policy in Australia, they should reassess what they supply us," he said.
Ukrainian advocates also suggested petrol stations disclose at the bowser whether they bought fuel from tainted refineries.
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