India has become a significant importer of Russian crude oil, buying 18 per cent of the country’s exports. A significant share of the crude is re-exported as refined oil products, including to the US and Europe, an important loophole to close, said Centre for Research on Energy and Clean Air (CREA)
Despite the efforts of several countries to isolate Russia over the Ukraine war, research published on Monday shows Moscow earned $98 billion from fossil fuel exports during the first 100 days of its Kyiv offensive.
Here’s what you need to know:
Who published the report?
The report was published by the independent Finland-based Centre for Research on Energy and Clean Air (CREA).
It comes at a time when Russia is making slow and steady progress to capture the Donbas region and as Kyiv urges the West to sever all trade with Russia in the hopes of cutting off the Kremlin’s financial lifeline.
What happened?
Russia’s fossil fuel revenues come first from the sale of crude oil (46 billion), followed by pipeline gas, oil products, liquefied natural gas (LNG) and coal.
Even as Russia’s exports plummeted in May, with countries and companies shunning its supplies over the Ukraine invasion, the global rise in fossil fuel prices continued to fill the Kremlin’s coffers, with export revenues reaching record highs.
Russia’s average export prices were about 60 percent higher than last year, according to CREA.
As the BBC noted: “”On the face of it, this report contains a lot of bad news. Energy sales are still in effect funding the war in Ukraine, with high prices offsetting efforts to reduce demand. But that doesn’t mean pressure on Moscow won’t tell in the end. The report’s authors expect a partial EU embargo on Russian oil to cut revenues by some $36bn a year, for example. Exports of gas have already fallen dramatically – and there are plans to reduce Europe’s reliance on Russia still further.”
Who bought the oil?
According to the report, the EU took 61 percent of Russia’s fossil fuel exports during the war’s first 100 days, worth about 60 billion.
The top importers were China at 12.6 billion euros, Germany (12.1 billion) and Italy (7.8 billion).
Earlier this month, the EU agreed to halt most Russian oil imports, on which the continent is heavily dependent. Though the bloc aims to reduce gas shipments by two-thirds this year, an embargo is not in the cards at present.
Some countries have upped their purchases from Moscow, including China, India, the United Arab Emirates and France, the report added.
Oil-hungry India also guzzles
As per BBC, the report warned large quantities of Russian crude oil were now being shipped to India, which increased its share of Russia’s total crude exports from around 1 per cent before the invasion of Ukraine to 18 per cent in May.
Oil-hungry India has guzzled nearly 60 million barrels of Russian oil in 2022 so far, compared with 12 million barrels in all of 2021, according to commodity data firm Kpler.
Since Russia’s invasion in late February, global oil prices have soared, giving refiners in India and other countries an added incentive to tap oil Moscow is offering them at steep discounts of $30 to $35, compared with Brent crude and other international oil now trading at about $120 per barrel.
Their importance to Russia rose after the 27-nation European Union, the main market for fossil fuels that supply most of Moscow’s foreign income, agreed to stop most oil purchases by the end of this year.
“It seems a distinct trend is becoming ingrained now,” said Matt Smith, lead analyst at Kpler tracking Russian oil flows. As shipments of Urals oil to much of Europe are cut, crude is instead flowing to Asia, where India has become the top buyer, followed by China. Ship tracking reports show Turkey is another key destination.
“People are realizing that India is such a refining hub, taking it at such a cheap price, refining it and sending it out as clean products because they can make such strong margins on that,” Smith said.
In May, some 30 Russian tankers loaded with crude made their way to Indian shores, unloading about 430,000 barrels per day. An average of just 60,000 barrels per day arrived in January-March, according to the Helsinki, Finland-based Centre for Research on Energy and Clean Air, an independent think tank.
India’s imports of crude from Russia rose from 100,000 barrels per day in February to 370,000 a day in April to 870,000 a day in May.
A growing share of those shipments displaced oil from Iraq and Saudi Arabia, most of it going to refineries in Sika and Jamnagar on India’s western coast. Up until April, Russian oil accounted for less than 5 per cent of the crude processed at the Jamnagar oil refinery run by Reliance Industries. In May, it accounted for more than a quarter, according to Centre for Research on Energy and Clean Air.
India’s exports of oil products like diesel have risen to 685,000 barrels per day from 580,000 barrels per day before the invasion of Ukraine. Much of its diesel exports are sold in Asia, but about 20 per cent was shipped via the Suez Canal, headed for the Mediterranean or Atlantic, essentially Europe or the US, said Lauri Myllyvirta, a lead analyst at CREA.
It’s impossible to quantify the exact amount of Russian crude in refined products being shipped out of India, he said. Still, “India is providing an outlet for Russian crude oil to get through the market,” he said.
‘Important loophole to close’
The report said a “significant share” of this was being refined and sold on, often to customers in the US and Europe, which it described as “an important loophole to close”.
It added that strong sanctions against tankers transporting Russian crude would significantly limit the scope for this practice.
The report pointed out that as Russia seeks new markets for oil, much of it is being transported by ship – and the majority of the vessels used are owned by European and US companies.
“As the EU is considering stricter sanctions against Russia, France has increased its imports to become the largest buyer of LNG in the world,” said CREA analyst Lauri Myllyvirta.
Since most of these are spot purchases rather than long-term contracts, France is consciously deciding to use Russian energy in the wake of Moscow’s invasion of Ukraine, Myllyvirta added.
He called for an embargo on Russian fossil fuels to “align actions with words”,
“Yet embargoes have to be effective. The report points out that more and more Russian oil is being exported to India for refining. And some of those refined products are finding their way back onto European markets. Since refined products are not covered by the EU ban, this is a clear potential loophole,” the BBC report noted.
“And with Russian oil being diverted from pipelines and onto ships as Moscow seeks new markets, there is growing demand for vessels to carry it. But the majority of the oil tankers currently being used are owned by European companies. For pressure on Russia to be most effective, issues like these will have to be addressed.”
With inputs from agencies
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