Indian oil refiners suck up cheap Russian crude, but the risk is that their exports of refined products may face sanctions from countries determined to cut off Russian energy from world markets.
India’s imports of Russian crude hit a record high in May and are likely to rise again in June, according to data compiled by commodity analysts Kpler.
India imported 840,645 barrels per day (bpd) of Russian crude in May, compared to 388,666 bpd in April and 136,774 bpd in May last year, according to Kpler data.
June imports are estimated at 1.05 million bpd, meaning that Russia’s share of India’s total imports will rise to just under a quarter, a dramatic spike considering that ‘they accounted for about 2% of the total last year.
Indian refiners are happy to buy heavily discounted Russian crude, which is offered up to $40 a barrel below benchmark Brent crude prices.
Russian crude exports have been targeted by Western countries as part of sanctions aimed at punishing Moscow for its February 24 invasion of Ukraine.
The European Union this week announced a ban on maritime imports from Russia, and with Germany and Poland’s pledge to end pipeline imports, around 90% of Russia’s exports to the bloc of the 27 countries will end.
Other importers of Russian crude have said they are also aiming to end or reduce purchases, including major buyers of Russian Pacific exports like Japan and South Korea.
However, China, the world’s largest rough importer, and India, the third-largest, have thrown Russian exporters a lifeline, buying increasing volumes to take advantage of the cheaper price compared to other suppliers.
The risk for Indian refiners is that buyers of their refined product exports will start targeting these shipments, given the possibility that some of the diesel or gasoline has been refined from Russian crude.
Reliance Industries in India is a good example.
It operates a 1.2 million bpd refining complex at Jamnagar on India’s west coast and, although it supplies fuel to the domestic market, much of the output is exported.
The Port of Sikka handles imports of crude from Reliance, and Kpler data shows 10.81 million barrels of Russian crude arrived in May, or around 348,000 bpd.
The same port exported 2.0 million barrels of diesel, or about 64,500 bpd, to Australia in May, according to Kpler.
Australia imposed a ban on imports of Russian petroleum and refined products on March 11, which came into effect on April 24.
It is unclear whether the ban applies to fuel refined from Russian crude in a third country, such as India.
But it is likely that the Australian government will ask itself these questions and will have to consider whether to extend the ban on Russian fuels to those coming from refineries in third countries.
The port of Sikka also exported 2.56 million barrels of diesel to Europe in May, while it shipped 890,000 barrels of gasoline to the United States in April.
It’s not just Reliance that could export refined fuel made from Russian crude, with Nayara Energy, which operates India’s second-largest refinery, also at risk.
Nayara is owned by a subsidiary of Russia’s Rosneft and a subsidiary of commodities trader Trafigura and operates a refinery in Vadinar on India’s west coast.
This port exported 340,000 barrels of diesel to Australia in May, which Kpler said was sold by Nayara.
Overall, it is likely that at some point countries buying and processing Russian crude and then exporting refined fuels, such as India and possibly China, will find themselves under the control of governments trying to isolate Russia’s energy exports.
There is a risk of imposition of secondary sanctions, but also of measures aimed at making physical trade more difficult, such as sanctions on ships calling at Russian ports, bans on insuring shipments of Russian crude or shipments of refined products based on Russian oil.
As the world has seen with the sanctions against Iranian oil and product exports, countries and organizations facing such measures are trying to stay ahead of the curve, using subterfuge to hide the true origin of shipments.
A new game of cat and mouse over Russia’s energy exports is just beginning.
(Editing by Kim Coghill)
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