How EU sanctions on Russian crude helped India save $5bn last year | Explained

Tensions mounted between the European Union (EU) and India as External Affairs Minister S Jaishankar on Wednesday reacted to EU Foreign policy chief Josep Borrell's statement hinting at a crackdown on India's alleged sale of Russian oil as refined fuels, which sidetracks the sanctions imposed on Russia by the EU.

Borell's statement came as India's crude oil imports from Russia surged dramatically last year, recording a 10-fold increase, as reported by Bank of Baroda. The data revealed that India saved approximately $5 billion by intensifying its procurement of Russian crude.

Russia has become India's top source of crude now. Petroleum that hasn't been refined and processed into fuels is referred to as crude oil.

Indicating that India was helping Russia flout these sanctions, a couple of reports laid down statistics pointing at India's conspicuous role in the purchase of discounted crude oil from Russia and the sale of processed products to European countries. It also highlighted the major jump in India's share both in terms of crude import from Russia and export to European countries.

WHY DID THE WEST IMPOSE CURBS ON RUSSIAN CRUDE?

Western countries imposed sanctions on Russia after it invaded Ukraine in February 2022. To make the sanctions bite, crude exports from Russia was one of the significant items on the curbs list.

The Group of Seven countries, which includes the European Union, and Australia put a price cap of $60 per barrel on Russian crude. The nations came to be known as price cap coalition countries.

The price ceiling on Russian crude prohibits Western shippers and insurers from getting involved in trade of Russian oil if it trades above $60 per barrel. This was an attempt in reducing West's dependency on Russian crude.

The sanctions restricted European entities from selling certain products to Russia, while the Russian entities were also banned from selling these products to the EU. The import and export on these products was thus banned entirely. Crude was on the crosshairs of the western nations as curbs on fuel exports could drastically affect Russia's economy.

HOW SANCTIONS ON RUSSIA BENEFITTED INDIA

With the $60 price cap in place, Russian economy grew vulnerable to the sanctions, directed at its fuel exports. Russia redirected its exports and started offering crude at discounted rates to countries like India and China. India is among the world's top five crude importers.

The price ceiling on Russian crude prohibits Western shippers and insurers from getting involved in trade of Russian oil if it trades above $60 per barrel. So, India and China emerged as major destinations for Russian oil, providing conditions for oil marketing companies (OMCs) and shipping firms.

Russia provided discounts on the Ural blend to Indian refiners, enabling OMCs to improve their financial performance. According to sources, these discounts reportedly range between $15 and $20 per barrel.

Russian oil accounted for just two per cent of India's annual crude imports until 2021, while the number consequently took a drastic jump to almost 20 per cent, Bank of Baroda reported. These oil purchases that India made from Russia in the previous fiscal year resulted in savings of approximately $89 per tonne of crude, according to its data.

A report in January revealed India bought a record amount of Russian oil, with the country importing a whopping 33 times more than a year earlier.

As reported by Reuters, Europe typically imported an average of 1,54,000 barrels per day (bpd) of diesel and jet fuel from India before Russia’s invasion of Ukraine. But that increased to 2,00,000 bpd after the EU banned Russian oil products imports from February 5, according to Kpler data.

India’s oil imports from Russia increased so much that they are now higher than the combined imports from Iraq and Saudi Arabia. While Russia is now supplying more than one-third of all oil India imported, PTI reported, citing energy tracker Vortex.

HOW INDIAN SHIPPING COMPANIES GOT A FOOTHOLD

As the $60 price cap discouraged Western shippers and insurers from getting involved in Russian oil trade. This laid a breeding ground for new players. Among them was a rather lesser-known Indian company that grabbed unusual attention for its exponential business growth.

Gatik Shipping Management became one of the largest shipping vessel owners in the business as it bought the most oil tankers globally since the Russia-Ukraine war began in February 2022.

Gatik put together a fleet of as many as 61 old oil tankers since March 2022, when the Ukraine war broke, according to a report by the Indian Express. Most of these are on average 17 years old. The fleet’s cumulative value was estimated at over $1.5 billion, the report quoted London-based maritime market intelligence firm VesselsValue as saying.

It is, however, not clear if all the ships are owned by Gatik, given the extremely complex ownership structures of the maritime industry that render it impossible to trace the actual owner of a ship.

Though this company earlier shared its address with Buena Vista Shipping at the Neptune Mall in suburban Mumbai's Bhandup, India Today TV found that the company had shifted its operations. The office had no signboard and its doors were locked.

INDIA COUNTERS CHARGES OF WESTERN NATIONS

Earlier this month, on May 2, a Finland based report revealed that India tops the list of countries that is importing crude oil from Russia, and exporting the processed goods to the Europen countries -- an indirect contempt of the EU sactions.

Another report by the Centre for Research on Energy and Clean Air (CREA) highlighted that India shipped the highest volume of oil products to price cap coalition countries, a year since Russia’s invasion of Ukraine. India sold 14.8 million tonnes of oil products to these countries, representing a 2.4% increase from the prior year in volume terms, but a 48% rise in value terms. The latter is due to the rise in oil product prices which provides higher profits for refineries exporting refined products, the report said.

The report claimed that all this is an attempt by President Vladimir Putin to fund the war by circumventing the measures that attempt to hinder Russian government revenues.

The EU should crack down on India reselling Russian oil as refined fuels including diesel into Europe, the bloc’s chief diplomat Josep Borrell told the Financial Times on May 16.

“If diesel or gasoline is entering Europe ...  coming from India and being produced with Russian oil, that is certainly a circumvention of sanctions and member states have to take measures,” Borrell said.

External Affairs Minister S Jaishankar countered Borrell, saying, "Russian crude is substantially transformed in the third country and not treated as Russian anymore."

Despite pressure from the US and Europe, India has refused to entirely comply with Western sanctions on Russian imports. India has justified its oil purchases by asserting that, as a country heavily reliant on energy imports with a significant population living in poverty, it cannot afford higher prices.