Fan Yu

Russian Oil Embargo Benefits Only India

The losses of Western nations have become India’s gain

Russia H as an ace up its sleeve to evade oil sanctions imposed by Western nations: India. Most Western nations have barred the direct import of Russian crude. But their losses (both Russia and Western nations) have become India’s gain.

Russia has become India’s largest oil supplier. And with India’s expanding refining infrastructure, the country is poised to be a major player in the export of gasoline and diesel.

Here’s the loophole: There are no sanctions against gasoline and diesel refined using Russian crude. And even if there were, sources of crude are hard to track—once crude enters a country, it’s effectively become fungible.

The Russian ambassador to India, Denis Alipov, proudly announced to reporters in late January that the country has become India’s biggest oil supplier. In January, India increased its importation of Russian crude to 1.7 million barrels per day (bpd), up from 1.2 million bpd in December 2022. That’s a dramatic shift from earlier in the year—before Russia invaded Ukraine—when Russian oil made up less than 1 percent of India’s imports. In December 2021, India only imported about 36,000 bpd from Russia.

India, as a neutral party in the Russia–Ukraine war, is in a strategically advantageous position to both solve its own energy needs and gain market share as a refined product supplier.

As the world’s No. 3 crude oil consumer, India needs to import 85 percent of its oil. Previously, much of that was supplied by West Africa, the United States, and the Middle East. But due to the oil embargo against Russia, African and Middle Eastern oil prices have shot up as European buyers bid up prices because of their inability to buy Russian crude.

This is where India—and China— stepped in as a buyer of last resort for Russian crude, at discounted prices. According to Telegraph India, the average discount per barrel is $10 for India.

According to S&P Global Commodity Insights, India is looking to diversify its crude supplier by importing both Russian and U.S. oil in an effort to stave off future supply shocks.

What is it doing with all of this oil?

Indian industrial and energy giants Reliance Energy and Nayara Energy have expanded their refining capacity, and India has suddenly become a major global player in refined oil product. State-owned energy giants such as Bharat Petroleum and Hindustan Petroleum have also gotten into the refining sector.

The United States used to buy so-called VGO refined oil products from Russia. Now, the United States buys about 200,000 bpd of finished products, such as VGO, from India.

Europe is also a large customer.

VGO is vacuum gas oil, which is heavy oil left over from petroleum distillation. It’s a refined product that’s easy to transport and can be quickly refined to become diesel or gasoline fuel.

New York state has also become a large importer of Indian oil products. Bloomberg reported on Jan. 31 that New York has imported 89,000 bpd of gas and diesel from India, or roughly 40 percent of the oil fuel needs for the region. Much of that gas and diesel was refined from Russian crude.

With oil prices so high, the United States can’t afford to choose. Gas and diesel stockpiles along the U.S. East Coast are at their multiyear lows, leaving the residents of the Eastern seaboard susceptible to a supply and price shock.

All of this makes a mockery of the U.S. and the G-7 nations’ intended restrictions on Russian oil, such as price caps and import embargoes. Clearly, the sanctions are ineffective and a waste of time and resources. They were and will always amount to nothing more than political talking points.

And with most of the world staring at a global economic recession, governments would be foolhardy and irresponsible to continue this policy. Residents in the West are already struggling under high inflation, and forcing them to continue paying high prices for oil and gas is political malpractice.

The Russian embargoes were “invented by bureaucrats with finance degrees. None of them really understand oil markets,” Paul Sankey, president of Sankey Research, said during a segment of CNBC’s “Street Signs Asia” on Feb. 2.

“It has failed completely,” Sankey said.