The European Union (EU) Friday announced a ban on import of fuels made from Russian crude and coming from third countries with the exception of Canada, Norway, Switzerland, the United Kingdom and the United States. The move could severely hit India’s fuel exports to Europe, given the significant share of Russian crude in India’s oil import basket. The EU is also sanctioning Indian crude oil refiner Nayara Energy, in which Russian oil giant Rosneft holds 49.13 per cent stake, as part of its tranche of actions in the latest bid to force the Kremlin’s hand to end the war in Ukraine.
Nayara Energy has a 20-million-tonnes-per-annum refinery in Gujarat’s Vadinar, and operates a network of around 6,800 fuel retail outlets. It also sells part of its fuel production to public sector oil marketing companies. The sanctions would mean that Nayara Energy would not be able to export petroleum fuels and products to Europe, and potentially hit any of its dealings with European companies. It could also hit Rosneft’s plan to exit Nayara as the EU sanctions could spook prospective investors. Nayara Energy has so far not commented on the EU’s action against it.
As part of the sanctions and action package against Russia, the EU also decided to lower the price cap on seaborne Russian crude from $60 to $47.6 per barrel in an effort to curtail Russia’s revenue from oil exports. The package includes sanctions and other actions targeting Russia’s energy, shipping, banking, and military industry sectors. The energy sector is a key focus area of the package as oil exports account for a third of Russia’s revenue.
“The EU just approved one of its strongest sanctions packages against Russia to date. Each sanction weakens Russia’s ability to wage war. The message is clear: Europe will not back down in its support for Ukraine. The EU will keep raising the pressure until Russia ends its war,” Kaja Kallas, the EU’s High Representative for Foreign Affairs and Security Policy and chair of the Foreign Affairs Council.
It has to be seen whether the United States will join the EU in these measures, as US action could have far greater consequences in terms of enforcement of the sanctions. US President Donald Trump wants Russia and Ukraine to sign a peace deal within a few weeks, and has been pressuring Moscow and even its trade partners to force Russian President Vladimir Putin to end the three-and-half-year-old conflict.
“Although India continues to engage in legitimate trade with Russia, the political optics of such transactions are shifting in Western capitals. As energy ties deepen, India will have to walk a fine line between economic pragmatism and geopolitical pressure,” think tank Global Trade Research Initiative (GTRI) said in a report.
Likely impact on India’s fuel exports
Following Russia’s February 2024 invasion of Ukraine, Europe began shunning Russian oil as well as refined fuels like petrol, diesel, and jet fuel. However, countries like India, Turkey, and the UAE have been exporting fuels made from Russian crude to Europe. With no takers in Europe, Russia started offering discounts on its oil, and Indian refiners were quick to lap up the discounted barrels, catapulting Russia to the top of the list of India’s biggest oil sources. Currently, Russian crude accounts for around 40 per cent of India’s total oil imports.
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“India exported $19.2 billion worth of petroleum products to the EU in FY2024, but this dropped by 27.1% to $15 billion in FY2025. With the EU now closing the door on refined fuels made from Russian crude, Indian refiners may face further declines,” GTRI said in a report.
Industry insiders said that the likely impact of the EU ban on import of fuel made from Russian crude is not clear yet, and clarity is likely only when details of how they will be enforced and monitored. There is no way of differentiating whether the refined fuel has been made from Russian oil or crude from other sources, they said. It is not clear yet how the EU would define fuels made from Russian oil.
Reliance Industries (RIL) is the biggest Indian exporter of refined petroleum products. RIL accounted for around 90 per cent of fuel exports from India to Europe so far this year, while Rosneft-backed Nayara Energy accounted for around 4 per cent. The remaining share belongs to public sector refiners, who don’t export significant volumes of fuels as most of their production is consumed within India.
Indian oil industry officials also said that even in the event of Europe stopping all fuel imports from India, the impact would only be transitory as there are other markets where the fuels can be exported.
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“If Europe stops buying refined products from India, it will still have to buy from somewhere else. Global supply is limited, so all this ban would do is change global flows of fuel between regions, which may involve a bit of short-term disruption. For instance, if Europe starts buying more from West Asia, then India can shift exports to markets that were being majorly served by West Asian refiners, and so on,” said an industry official.
Lower price cap
“The EU is lowering the price cap for crude oil from $60 to $47.6 per barrel, to align it with current global oil prices and is introducing an automatic and dynamic mechanism to modify the oil price cap and ensure that this price cap is effective. Oil exports still represent one third of the Russian government’s revenues,” the EUs said in a release.
India is the world’s third-largest consumer of crude oil and depends on imports to meet around 88 per cent of its requirement. The lower price cap could be beneficial for India if it can be strictly enforced. Given the massive share of Russian crude in India’s oil imports, if the price of Russian barrels reduces due to a lower price cap, it could potentially lower the cost of imports.
However, the extent to which that may happen appears limited, according to experts. Significant volumes of Russian crude imported by India are transported by the so-called shadow fleet—vessels effectively controlled by Russia—that doesn’t rely on Western shipping and insurance, which means that such shipments need not adhere to the price cap. The price cap is adhered to for cargoes that depend on Western shipping and insurance. To be sure, Indian refiners buy Russian crude on a delivered basis, which means that transportation and insurance are arranged by the seller.
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It is to be seen if the US and its allies will also join the EU in lowering the price cap on Russian crude, as that could lead to its better enforcement.
The US, EU, and a few other powers had imposed a price cap of $60 per barrel on Russian crude, as per which Western shippers and insurers cannot participate in Russian oil trade if the price of Moscow’s crude is above that level. Payment for oil cargoes in breach of the price cap cannot be in US dollars or Euros. The idea behind the price cap was to limit Russia’s revenue from oil exports, but not to stop its oil from reaching the global market.
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