Following fresh sanctions on Russia’s oil sector by Western powers, private sector refining major Reliance Industries (RIL) on Friday said that it is assessing the implications and compliance requirements, and will by “complying fully” with any guidance on the issue from the Indian government. RIL, currently the largest Indian importer of Russian crude and the biggest exporter of refined petroleum products, also said that it will comply with the European Union’s (EU’s) latest guidelines on import of petroleum products into Europe. The company said it will adhere to “applicable sanctions and regulatory frameworks and will be adapting the refinery operations to meet the compliance requirements”.
“We have noted the recent restrictions announced by the European Union, United Kingdom and the United States on crude oil imports from Russia and export of refined products to Europe. Reliance is currently assessing the implications, including the new compliance requirements. We will comply with the EU’s guidelines on the import of refined products into Europe. Whenever there is any guidance from the Indian Government in this respect, as always, we will be complying fully. Reliance has consistently aligned itself with the objectives of ensuring India’s energy security,” an RIL spokesperson said.
The statement comes a day after the US imposed sanctions on Russian oil giants Rosneft and Lukoil, which account for over two-thirds of India’s oil imports from Russia—currently the biggest supplier of crude oil to India with a market share of over 35 per cent. RIL alone accounts for around half of India’s Russian oil imports and sources a bulk of its Russian oil purchases from Rosneft under term deal. Industry insiders and experts anticipate a sharp drop in India’s Russian oil imports following these sanctions, as refiners—RIL as well as public sector players—would look to avoid risk of attracting secondary sanctions from Washington. Banks, too, are expected to avoid transactions involving payments to the sanctioned entities.
“The Company remains fully committed to maintaining its longstanding and impeccable record of adherence to applicable sanctions and regulatory frameworks and will be adapting the refinery operations to meet the compliance requirements. As is customary in the industry, supply contracts evolve to reflect changing market and regulatory conditions. Reliance will address these conditions while maintaining the relationships with its suppliers. Reliance is confident that its time-tested, diversified crude sourcing strategy will continue to ensure stability and reliability in its refinery operations for meeting the domestic and export requirements, including to Europe,” the RIL spokesperson said.
Prior to the US sanctions on Rosneft and Lukoil, the EU had announced a blanket ban on imports of petroleum products derived from Russian oil in third countries from January 21. According to the EU, exporters of oil products to the bloc will have to show appropriate evidence that the products are not derived from Russian crude. RIL has two refineries at its integrated complex in Jamnagar, with one unit dedicated to exports. According to industry experts, in order to comply with the EU’s guidelines, RIL can segregate its crude and process only the non-Russian barrels in one unit to cater to exports to Europe.
Public sector refiners export miniscule volumes of petroleum products as they primarily cater to domestic demand. The other private sector refiner Nayara Energy—part owned by Rosneft—is already sanctioned by the EU, and cannot export to the continent. This made RIL the only Indian refiner exporting majorly to Europe.
The latest move from the Donald Trump administration—which had so far not imposed direct sanctions on Russian oil majors even as it pressured New Delhi to cut oil imports from Moscow—is being seen as a major escalation in its bid to force the Kremlin’s hand into ending the war in Ukraine. According to the US Treasury Department, all existing transactions involving Rosneft and Lukoil must be wound down by November 21.
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These sanctions effectively mean that companies and financial institutions doing transactions with the sanctioned entities run the risk of attracting secondary sanctions from Washington. Historically, India has avoided oil imports from countries like Iran and Venezuela, whose oil was sanctioned by the US, and industry watchers and experts expect a similar approach on oil from Rosneft and Lukoil.
Given Indian refiners’ and banks’ exposure to the US—from dollar-denominated trade to access to the American financial system and markets—potential secondary sanctions could have a significant impact on them. Oil industry insiders said that the companies and banks are likely to adopt an approach of abundant caution to steer clear of secondary sanctions, This effectively means that at least in the short term, oil imports from Russia could plummet. While it is too early to estimate the actual impact of the US sanctions industry sources said that government-owned refiners are already evaluating compliance risks in a bid to ensure that whatever Russian oil they buy henceforth is not being sourced directly from Rosneft, Lukoil, and their numerous arms.
There is some speculation that public sector refiners, which buy nearly all of their Russian oil from third-party traders and not directly from Russian oil companies, could still continue to engage in such trades as none of these third-party traders have been targetted by the sanctions. However, experts opine that even these trades are bound to see a significant hit in the near term, as there may be a general aversion to get involved in Russian oil trade for the time being.
Oil, Russia’s biggest source of revenue, is a lever that the Trump administration believes it can use to force Moscow to end the war in Ukraine. New Delhi is the second-largest buyer of its oil after Beijing, and is in the midst of sensitive trade pact negotiations with Washington. Trump has been pressuring India to stop Russian oil purchases, and slapped an extra 25 per cent tariff penalty on most Indian goods in August.
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On its part, the Indian government has consistently maintained that the country will buy oil from wherever it gets the best deal, as long as the oil is not under sanctions. There are no sanctions on Russian oil; it is only subject to a price cap imposed by the US and its allies that applies if Western shipping and insurance services are used for transporting the oil. But even though the American sanctions on Rosneft and Lukoil are not sanctions on Russian oil per se, they can really choke supplies to India as over two-thirds of India’s Russian oil imports come from these Russian energy majors, as per industry estimates. Rosneft and Lukoil together account for over half of Russia’s oil output and seaborne exports.