EU Targets Indian Oil Refinery Amidst New Sanctions on Russia's Energy Sector

New Sanctions Imposed by the EU

On Friday, the European Union announced a new set of sanctions targeting the Indian oil refinery owned by Rosneft, a major Russian energy company, as part of its ongoing response to the conflict in Ukraine.

This latest sanctions package includes additional banking restrictions and limitations on fuels derived from Russian crude oil.

The revised oil price cap, now set at $60 per barrel, compels Russia to sell its crude oil at lower prices to countries like India, which is the second-largest importer of Russian oil. Currently, Russian crude constitutes nearly 40% of India's total oil imports.

EU foreign policy chief Kaja Kallas highlighted that this marks the first time a flag registry and the largest Rosneft refinery in India have been designated under sanctions.

Rosneft holds a 49.13% stake in Nayara Energy Ltd, previously known as Essar Oil Ltd, which operates a 20 million tonne per year refinery in Vadinar, Gujarat, along with over 6,750 petrol stations.

An investment consortium, Kesani Enterprises Company, also holds a 49.13% stake in Nayara, which is backed by Russia's United Capital Partners and Mareterra Group Holding.

Due to the EU sanctions, Nayara is now prohibited from exporting fuels like petrol and diesel to European nations.

"We are resolute in our actions. The EU has just approved one of its most stringent sanctions packages against Russia to date," Kallas stated. "We are further constraining the Kremlin's war budget, targeting 105 additional shadow fleet vessels and restricting Russian banks' access to funding."

The sanctions also include a ban on the Nord Stream pipelines and a reduction in the price cap for Russian oil exports.

In December 2022, the G7 nations established a $60 per barrel price cap on Russian oil sold to third-party countries. This mechanism allowed Western insurance and shipping services only for oil sold at or below the capped price, aiming to limit Russia's oil revenue while ensuring global energy supply stability. However, the cap has faced criticism for its ineffectiveness.

The EU and the UK have been advocating for a lower price cap following a decline in global oil prices, rendering the existing $60 cap nearly obsolete.

While Kallas did not disclose the new price cap, reports indicate it may be set between $45 and $50, with automatic adjustments at least biannually based on market conditions.

Although the lower price cap could benefit importing nations like India, ongoing purchases may be jeopardized if the US enforces its threat of sanctions. Recently, President Donald Trump warned that countries purchasing Russian exports could face sanctions or hefty tariffs if a peace agreement with Ukraine is not reached within 50 days.

Typically, Russia supplies crude oil to India on a delivered basis, managing both shipping and insurance for the cargo. Under the price cap mechanism, Russia maintained the official invoice price of crude below $60 per barrel to comply with sanctions, while charging higher rates for transportation services. This approach has allowed Russia to effectively achieve prices closer to market rates despite the cap.

The oil price cap has been widely regarded as ineffective, as much of Russia's crude is transported via a 'shadow fleet'—vessels operating outside the control of G7-based shipping services. A significant portion of Russia's seaborne oil exports is reportedly carried by tankers that are not flagged, owned, or operated by companies based in the G7, EU, Australia, Switzerland, or Norway, and are not insured by Western protection and indemnity clubs.

The shadow tanker fleet has expanded as the steep discounts on Russian crude oil have narrowed—from record levels of around $40 per barrel below Dated Brent in 2022, following the invasion of Ukraine, to just $3–4 per barrel currently.

"We are intensifying pressure on Russia's military industry, targeting Chinese banks that facilitate sanctions evasion, and blocking technology exports used in drones," Kallas remarked. "Our sanctions also impact those indoctrinating Ukrainian children. We will continue to escalate costs, making it clear that halting aggression is the only viable path for Moscow."

Europe imports fuels like diesel and petrol from India, where Indian refiners typically purchase substantial amounts of Russian crude, which is then refined into fuels like petrol and diesel for export to the EU.

Oil revenue is crucial for Russia's economy, enabling President Vladimir Putin to fund military operations without exacerbating inflation for the general populace or risking a currency collapse.

Additional measures adopted by the EU include sanctions on dozens more vessels within Russia's shadow fleet of oil tankers, bringing the total to over 400, as well as sanctions on various entities and traders associated with this covert fleet. Furthermore, more goods have been added to existing export restrictions on items used by Moscow's military efforts, with sanctions imposed on several entities, including those in China and elsewhere, that are perceived to assist Russia in circumventing the bloc's trade and energy restrictions.

The Nord Stream pipelines connecting Russia and Germany were also targeted to prevent Moscow from generating future revenue from them. These pipelines were designed to transport Russian natural gas to Germany but are currently non-operational.

The sanctions also focus on Russia's banking sector, aiming to restrict the Kremlin's ability to raise funds or conduct financial transactions, with two Chinese banks added to the sanctions list.