Energy markets are inextricably global. This remains true despite Western sanctions on Russia, as India’s actions during the war in Ukraine have shown.
India was a leader of the nonaligned countries during the Cold War and retains a nonadversarial relationship with Russia in addition to a friendly relationship with the United States. Despite U.S. officials’ displeasure, India has continued to purchase Russian crude oil, which trades at a significant discount due to Western sanctions. As a poor country with massive energy needs, it’s hard to blame India for bargain-shopping.
The EU has been upset because Indian refiners are selling diesel to Europe. That diesel was, in many cases, produced with Russian crude, so it could be seen as a way to evade EU sanctions on Russia. Writing in the Times of India, S. A. Aiyar argues that that is not the case.
He points out that refining crude oil transforms the oil into a different product entirely. Likening it to money laundering, where the same money is passed through a third party to obscure its origin, is not correct. India is very open about the fact that it is purchasing Russian oil, and its refineries are some of the largest in the world, producing a variety of products that, once refined, are “unambiguously Indian” according to global trade rules, Aiyar writes.
More importantly, energy markets are globalized. “Indian refineries import crude from a wide variety of sources, and it may be impossible to know which barrel of diesel originates from which barrel of crude,” Aiyar writes.
The share of Indian imports from OPEC is at an all-time low as a result of its increased imports from Russia, but it still imports plenty from the Middle East. Data from April show that 43.6 percent of Indian oil imports are from Russia, Azerbaijan, and Kazakhstan, while 44 percent are from the Middle East and 3.4 percent are from Africa. It’s not as though Indian diesel is entirely produced with Russian crude.
If the objection is that the Indian diesel is going to Europe, that doesn’t make sense, either. First, Aiyar notes that the U.S. is actually the top purchaser of Indian diesel. But if it wasn’t sold to Europe or the U.S., it would be sold to someone else, with the same effect on Russia either way. Aiyar writes:
The plain fact is that the EU has a diesel deficit. India has a diesel surplus which has to be exported somewhere. Suppose Nayara [one of India’s largest refineries] is currently exporting diesel to Europe using mostly Russian crude, whereas the Indian Oil Corporation (IOC) is using Gulf crude to export diesel to Sri Lanka. Will it make any geopolitical difference if Nayara sells instead to Sri Lanka and the IOC to EU? Absolutely not.
The cost of sanctions and hurt to Russia will remain the same. The cost to EU consumers will remain the same. The two oil companies will face slightly different transport costs with some marginal impact on their profits. But the geopolitical situation will not change at all. Hence, it makes no sense for the EU to claim that sanctions are somehow being violated.
Nayara, which is part-owned by the Russian company Rosneft, sends 84 percent of its fuel exports to Asia, the Middle East, and Africa, and only 1.7 percent to Europe. The company is mostly focused on the domestic market in India regardless.
Despite the sanctions, energy is still traded on a global market, and global market prices are guiding behavior. The EU’s objections are a bit like saying that Indian diesel has cooties because it touched Russia. Whether Indian diesel is sold to the EU or to Asia, it will be sold, and the effects on Russia will be the same either way.