India’s Russian crude oil play is getting curiouser and curiouser. Imports of Urals crude have topped the Indian order book position for four months in a row. The previous month of January had Russian crude accounting for 28% of our supplies, with Iraq, Saudi Arabia and the US—our traditional suppliers—left far behind. This is a massive turnaround considering Russia only accounted for 0.2% of India’s crude imports before the Ukraine war. As the West’s sanctions have tightened over Russia, India’s refiners have seized the opportunity and have been sealing deals at discounts ranging from $10 to $35 per barrel. January purchases have broken all records as imports touched 1.27 million barrels per day (bpd), up from the already high 1.2 million bpd in previous months.
But the twist in the tale is that much of these supplies are not for domestic consumption but are destined for US and European shores. The US, for instance, used to be a big buyer of an intermediate refined product called virgin gas oil (VGO), which can be further refined and sold upstream as diesel and gasoline. With Russian VGO cut off after the sanctions kicked in, US refiners are buying VGO from Indian refineries run by Reliance Energy and Nayara Energy. According to data intelligence agency Kpler, India shipped 89,000 bpd of gasoline and diesel to New York last month, the highest in four years.
So what’s becoming of the West’s sanctions? And is this round-tripping of refined products to western refiners by India at a handsome profit going to be tolerated by the Western powers? Clearly, India has gone far beyond its original brief of negotiating the best deals to ensure energy security at the most competitive prices. On the other hand, the West is not blind to what’s going on. It knows sanctions are being broken and has chosen to turn a Nelson’s eye. The rationale of the West’s diplomatic play is to squeeze Russian oil revenue the best it can without creating a shortage of petroleum products in their markets. India’s export of refined products made of Russian crude seems to suit that rationale. No one seems to be bothered if Indian refiners make money off the international gambit. The problem will begin if someone turns the screws and begins a retaliation process against India for breach of sanctions. Are we prepared? And is there a Plan B?