Indian refiners work to build sanctions-proof supply chain for Russian oil

By Rakesh Sharma and Jack Farchy 

Oil refiners in India — eager to keep importing cheap crude from Russia — are working with merchants, shippers and other middlemen to rebuild supply chains as tougher US sanctions come into effect.

 

Speaking on the sidelines of India’s flagship energy gathering in Delhi, executives said the existing networks were being reconfigured with selling entities, tankers and insurance providers that are not on Washington’s blacklist. Some are existing outfits that have not been impacted by the punitive measures, while others are newly created, replacing those that are now off-limits, they said.

 

The executives, all directly involved in the trade, asked not to be named as they are not allowed to speak publicly.

 

Since restrictions were first imposed, India’s heavyweight buyers, including Indian Oil Corp Ltd, Bharat Petroleum Corp Ltd, Mangalore Refinery & Petrochemicals Ltd and Reliance Industries Ltd., have splurged on discounted Russian crude. Purchases went from a negligible portion of total imports to roughly a third. All that changed in January, however, when Washington rolled out a fresh salvo against vessels and entities assisting Moscow. 

 

Close to 160 tankers were sanctioned in that round, leaving Indian and Chinese buyers scrambling. The wind-down period offered some relief at the time, as arrivals for February were mostly spared — but not March.

 

State refiners and Reliance are missing a total of 18 to 20 cargoes of Russian crude for March loading, some of the people estimated — the equivalent of 20 million barrels or 14% of India’s monthly imports. The companies are still hoping to fill those gaps with Russian supplies, to avoid having to seek more expensive replacements. Indian officials have said any disruption would be temporary, but time is running short.

 

“Imports need ships which are not sanctioned, insurance which takes time to reconfigure, and imports will need payments to go through. So each one of these has problems that need to be solved,” Oil Secretary Pankaj Jain said at the Delhi conference this week. “People are working on solving these problems,” he later added. 

 

One of the defining features of Russia’s ability to adapt — and a major headache for sanctions enforcers — is the rapid mutation of trading entities.

 

Executives from state refiners said this week that brand new Dubai-based trading entities including L-Oil and Sccton have emerged in the spot market to offer Russian cargoes to Indian buyers. While the names were new, the executives said individuals and traders behind them were not.

 

These new iterations have come to replace firms such as Black Pearl, Guron Trading, Demex Trading, all targeted by the US sanctions in January. 

 

Dubai and, to a lesser extent, Hong Kong, have seen dozens of shell trading and shipping companies emerge since the Russian invasion of Ukraine. These conduits for Russian and Iranian oil are easy to incorporate and to shut down, creating a game of whack-a-mole with US authorities. New firms are created faster than Washington can identify and shutter then. 

 

It’s still unclear how the Trump administration will balance the eagerness to take a tough on stance on Russia and Iran and the desire to limit oil price increases and global disruption. Prime Minister Narendra Modi is due to meet the US President in Washington this week.

 

Shell Games 

There are other options, however, for Indian refiners and entities marketing Russian crude — including using onshore storage tanks to camouflage origin, the executives said.

 

Russian oil that’s discharged into an onshore tank in Fujairah, or example, can be reloaded onto a new ship as UAE-origin cargo — a move that would rebrand the sensitive oil into a shipment that can be more widely and freely traded, they said.  

 

Relabelling via ship-to-ship transfers is already a common strategy used by Chinese buyers looking to mask Iranian crude. Onshore tanks have to date been less popular due to higher costs. 

 

Indian Oil Minister Hardeep Singh Puri, speaking this week, reiterated his regular call for discounts from Moscow, and underlined that India had multiple crude sources and many options.

 

Russia and India need each other, however, as Moscow needs buyers outside China, and Delhi’s buyers will struggle to go back go traditional suppliers in the Middle East and strike a hard bargain.

 

“No matter what pressure is exerted we will continue being in the market in a pragmatic way,” Russian First Deputy Energy Minister Pavel Sorokin told the conference, adding the market needed Russian crude. “There is no other oil or energy that can replace it without having the world incur a huge cost.”