The huge blue and red hull of the SCF Primorye arrived at the port of Vadinar, west of Gujarat, India, earlier this month. The 84,000-ton tanker, built in 2009 and sailing under the Liberian flag, had arrived from the port of Ust-Luga, a Russian settlement near the Estonian border.
Until 2017, the Vadinar oil refinery was controlled by Essar, the Indian owner of the Stanlow refinery at Ellesmere port. Since then, a consortium including sanctioned Russian state oil firm Rosneft and commodity trader Trafigura, which holds a 24.5% stake, has owned Nayara Energy, which runs the refinery.
The arrival of the tanker came as India increased imports of Russian oil. The Asian nation’s willingness to buy Russian crude at discounts of up to 30% has undermined efforts by the US, Europe and the UK to deplete Vladimir Putin’s war chest by cutting imports. Russia collected $20 billion from oil exports in May, recovering to pre-invasion levels. Now, concerns are growing that India is being used as a possible back door to Europe for Russian oil supplies, given rising imports.
Before the invasion of Ukraine, Indian imports of Russian oil were negligible due to high freight costs. But recently, Russian oil imports to India have increased. Vadinar owner Nayara bought Russian oil in March, just before international restrictions on its exports were introduced, after a one-year gap, buying around 1.8 million barrels from Trafigura, Reuters reported.
The volumes that India has been buying and exporting, however, suggest that some of the refined Russian crude could ultimately be used at filling stations in Europe. It is unclear where the Russian crude brought to Vadinar at SCF Primorye will be used. Vadinar’s owner declined to comment on the shipment or whether he was shipping Russian oil to Europe.
In May, India imported about 800,000 barrels of oil per day from Russia in May and rating agency Fitch predicts imports could soon rise to 1 million barrels per day, or 20% of India’s total imports. India, China and the United Arab Emirates have taken over as imports of Russian crude oil to the EU fell by 18% in May.
Putin told the business summit of the Brics (Brazil, Russia, India, China and South Africa) this week that “Russian oil supplies to China and India are growing remarkably.”
India’s 1.4 billion people give you reason to look for cheap supplies. But it is a dangerous political game. “India is walking a tightrope,” said Alan Gelder, vice president of refining, chemicals and oil markets at Wood Mackenzie. “If you drink too much, you don’t want the West to sanction the rest of your economy.”
The Center for Research on Energy and Clean Air said Reliance Industries’ Jamnagar refinery in Gujarat received 27% of its oil from Russia in May, up from 5% in April. The center said about 20% of Jamnagar’s exported shipments left for the Suez Canal, indicating they were headed for Europe or the United States. Shipments were made to France, Italy and the United Kingdom. However, there is no evidence that these shipments included Russian oil.
The UK has promised to phase out Russian oil by the end of the year. Britain did not import gasoline before the war, but diesel accounted for 18% of total demand. While the Russian oil trade remains legal, the stigma attached to it means some international companies involved in supplying the fuel may try to mask their origins. Some energy companies have been quick to cut shipments from Russia, but industry watchers said some drivers in south-east England are likely still refueling with diesel refined in Russia.
State oil processors are trying to secure six-month Russian crude supply contacts to India, Bloomberg reported this month. The trio of state-owned refiners, Indian Oil Corp, Hindustan Petroleum and Bharat Petroleum, declined to answer questions about whether they were importing Russian oil or exporting it to Europe.
Industry sources said tracking Russian oil shipments to Europe via India is proving very difficult. “You will find that several shipments of crude will arrive at a port from different countries and will be mixed. Tracking a hydrocarbon is basically impossible.”
There are various tactics carriers are using to hide the origin of Russian oil, the sources said. Financially, paying in Chinese currency, rather than the industry standard dollar, is an option. Yuan-ruble trade volumes have risen 1,067% since the invasion of Ukraine in February. Ship-to-ship transfers of oil cargoes have also spiked, suggesting that oil is being shifted from Russian-flagged ships to other ships. An increasing number of boats have “turned off” by turning off their automatic identification systems as thousands of gallons of black stuff are transferred in the waves.
A third, more specific option to hide Russian transactions is to stop using a currency and exchange oil directly for other products, such as gold, food or weapons. Iran has previously received payments from trading partners in gold rather than dollars.
“If a country or an oil operator wants to hide the source of crude oil or oil products, they can do it very easily,” said Ajay Parmar, oil market analyst at ICIS.
“Indian refiners are clearly taking significant volumes of Russian crude at a discount and then re-exporting a significant proportion of the refined product out of the country,” said Craig Howie, an analyst at Shore Capital. “Given the evident strength in gasoline and diesel prices, this presumably underpins strong refining margins for Indian downstream players. The business rationale here is of course understandable, but it seems to run counter to the West’s clear goal of hampering the Russian economy and war machine.”
Oleg Ustenko, President Volodymyr Zelenskiy’s top economic adviser, is more forthright. He told The Guardian: “We call on countries around the world to show solidarity with Ukraine by rejecting blood oil from Russia. But let’s be clear, the UK and EU energy, transport and insurance companies that are helping Putin complete this turn into new markets out of sheer greed are complicit in his war crimes.
“European leaders must take their sanctions regimes seriously and ban not only the import of Russian fossil fuels, but also heavily tax their trade, otherwise the ongoing tragedy in Ukraine will continue and even spread.”
For Indian Prime Minister Narendra Modi, trade with Russia remains a political balancing act. While the price of oil remains high and there is pressure on consumers at the pump, the risk of a backlash in the West will be outweighed by the cost of cheap oil.
Trafigura said it “unconditionally condemns” the war and has “substantially reduced its purchases of Russian crude.” The company said it stopped trading with Russian organizations before EU sanctions introduced last month. Trafigura said it has “no operational control” of Nayara Energy or Vadinar. Reliance declined to comment.