The huge blue and red hull of SCF Primorye arrived at the port of Vadinar in West Gujarat, India earlier this month. The 84,000 tonne tanker, built in 2009 and sailing under the Liberian flag, had arrived from the port of Ust-Luga, a Russian colony near the border with Estonia.
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 Russian state oil company Rosneft and commodities trader Trafigura, which has a 24.5% stake, has owned Nayara Energy, which runs the refinery.
The tanker’s arrival came as India increased its imports of Russian oil. The Asian nation’s willingness to buy Russian crude at discounts of up to 30% has undermined efforts by the United States, Europe and the United Kingdom to deplete Vladimir Putin’s war chests by reducing the imports. Russia reaped $20 billion in oil exports in May, rebounding to pre-invasion levels. Now there are growing fears that India could be used as a potential backdoor to Europe for Russian oil supplies, given the sharp rise in imports.
Prior to the invasion of Ukraine, Indian imports of Russian oil were negligible due to high transportation costs. But recently, Russian oil imports to India have increased. Vadinar owner Nayara bought Russian oil in March – just before international curbs on its exports were introduced – after a year-long hiatus, buying around 1.8 million barrels from Trafigura, Reuters reported.
The volumes that India has bought and exported, however, suggest that some of the refined Russian crude could ultimately find use at European service stations. It is unclear where Russian crude brought to Vadinar on SCF Primorye will be used. Vadinar’s owner declined to comment on whether or not it ships Russian oil to Europe.
In May, India imported around 800,000 barrels of oil per day from Russia in May and the rating agency Fitch predicts that imports could soon increase further to 1 million barrels per day, or 20% of total imports from India. India, China and the United Arab Emirates took over, as imports of Russian crude oil into the EU fell by 18% in May.
Putin told the BRICS (Brazil, Russia, India, China and South Africa) trade summit this week that “Russian oil supplies to China and India are increasing significantly.”
India’s population of 1.4 billion gives it a reason to seek out cheap supplies. But it is a dangerous political game. “India is walking a tightrope,” said Alan Gelder, vice president of refining, chemicals and petroleum markets at Wood Mackenzie. “If you take too much, you don’t want the West to sanction the rest of your economy.”
The Energy and Air Quality Research Center said Reliance Industries’ Jamnagar refinery in Gujarat received 27% of its oil from Russia in May, up from 5% in April. The center said that around 20% of cargo exported from Jamnagar leaves for the Suez Canal, indicating that it is heading for Europe or the United States. Shipments have been made to France, Italy and the United Kingdom. However, there is no evidence that these shipments included Russian oil.
The UK has pledged 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. Although trading in Russian oil remains legal, the stigma attached to it means that some international companies involved in fuel supply may try to hide its origins. Some energy companies have rushed to cut shipments from Russia, but industry watchers said some drivers in south-east England were still likely to fill up with refined diesel in Russia.
State oil processors are trying to secure six-month supply contacts for Russian crude to India, Bloomberg reported this month. The trio of state refiners – Indian Oil Corp, Hindustan Petroleum and Bharat Petroleum – declined to answer questions about importing or exporting Russian oil to Europe.
Industry sources have said that tracking Russian oil shipments to Europe via India is proving very difficult. “You will find that multiple shipments of crude will come into a port from different countries and be mixed together. Tracking an oil is basically impossible.
Shippers use several tactics to hide the origin of Russian oil, sources said. Financially, paying in Chinese currency – rather than industry-standard dollars – is an option. Yuan-ruble trading volumes have jumped 1,067% since the invasion of Ukraine in February. Ship-to-ship oil cargo transfers have also increased, suggesting that oil is being transferred from Russian-flagged vessels to other vessels. More and more ships are “going dark” by turning off their automatic identification systems as thousands of gallons of black stuff are transferred onto the waves.
A third, more specialized option to hide Russian transactions is to reduce the use of a currency and directly exchange oil for other commodities, such as gold, food or weapons. Iran has already accepted payment from its trading partners in gold rather than dollars.
“If a country or an oil operator wants to hide the source of crude oil or petroleum products, they can very easily do that,” said Ajay Parmar, oil market analyst at ICIS.
“Indian refiners are clearly taking large volumes of discounted Russian crude and then re-exporting a significant proportion of the refined products out of the country,” said Shore Capital analyst Craig Howie. “Given the obvious strength in gasoline and diesel prices, this is likely supporting strong refining margins for Indian downstream players. The business rationale here is of course understandable, but seems to run counter to the clear objective of the West to hamper the Russian economy and war machine.
Oleg Ustenko, the main economic adviser to President Volodymyr Zelenskiy, is more direct. He told the Guardian: “We call on countries around the world to show solidarity with Ukraine by rejecting the blood oil of Russia. But let’s be clear, the British and European energy, transport and insurance companies helping Putin complete this pivot to 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 expand.”
For Indian Prime Minister Narendra Modi, trade with Russia remains a political balancing act. As the price of oil remains high and there is pressure on consumers at the pump, the risk of a Western backlash will be weighed against the cost of cheap oil.
Trafigura said it “unconditionally condemns” the war and has “significantly reduced its purchases of Russian crude”. The company said it ceased all trade with Russian organizations ahead of EU sanctions introduced last month. Trafigura said it has no “operational control” over Nayara Energy or Vadinar. Reliance declined to comment.