What if Russian crude was still present at French and European gas stations? Michel-Edouard Leclerc, president of the strategic committee of the E. Leclerc stores, put a coin in the machine on the RTL microphone a few weeks ago: “We have to go buy it from the merchants who may give us money. Indian diesel. Still we have to verify that it is not Russian diesel via India.” On December 5, the European Union imposed an embargo on Russian crude oil transported by sea. Two months to the day, Member States are preparing to do the same for Russian petroleum products, such as diesel, starting this Sunday.
However, this new part of the series of sanctions taken against Russia after the invasion of Ukraine raises questions, as Vladimir Putin’s country has found new sources of growth. New relays that even become intermediaries to export hydrocarbons to countries that apply sanctions.
Russian crude is sold at a discount to India
Among these countries, we find India in particular, as suggested by Michel-Edouard Leclerc. And it is not for less, “India is already the country that has increased its purchases from Russia the most, because the country practically did not import oil or other fossil fuels from Russia before it invaded the country. ‘Ukraine,” recalls Lauri Myllivirta, an analyst from the Center for Research in Energy and Clean Air (CREA).
For his part, the adviser to the energy center of the French Institute for International Relations (Ifri) Olivier Appert evokes a tenfold increase in Russian oil exports to India. Imports from Russia now account for around a quarter of the Indian peninsula’s total oil consumption. In 2021, the largest source of India’s oil imports was Iraq with a 24% share, so it seems likely that Russia has become India’s largest supplier.
This exponential increase in Indian imports of Russian crude oil is obviously explained by the prices that Russia is forced to charge to continue selling its production. “Even before the European sanctions, Ural oil was discounted by 30% because operators and traders were already worried about the sanctions,” says Olivier Appert.
According to the Telegram, India would benefit from a reduction of around $10 per barrel in the market. Faced with pressure from some Western countries, the Asian giant, which has more than 1.4 billion inhabitants, argues that this crude is essential to meet the strong national demand. “India has low oil production, around 40 million tons per year, while its consumption is 220 million tons per year: it is structurally an importer,” confirms Olivier Appert.
India is not a privileged partner of Europe for oil
However, some of this imported Russian crude on Indian soil is exported after being refined there. “We know how to recognize the DNA of a crude oil, but once refined, it becomes trivial and it becomes difficult or even impossible to determine its origin,” explains Olivier Gantois, director of UFIP EM (Union française des industries, energy and mobility companies).
However, according to Olivier Appert, the phenomenon has yet to moderate. On the one hand, because India’s refining capacity is relatively small, with 5 million barrels per day, or twice less than China and three times less than the United States. On the other hand, India tends to privilege Southeast Asia for the export of its petroleum products rather than distant geographical areas like Europe, which is more dependent on the Middle East or even the United States is related to diesel. Olivier Appert cites the example of TotalEnergies, which would be much more interested in buying products from its refinery in Saudi Arabia, the closest and structurally exporting country.
The United States, a second great intermediary?
But is the Indian route the only intermediary through which Russian crude could arrive in a “disguised” way to France and the other countries of the European Union (with the exception of Bulgaria, which benefits from an exception to buy shipments of Russian crude by ship)? After quickly establishing an embargo on Russian oil, the United States must replenish its strategic reserves that have also been depleted to limit the spread of OPEC’s price hikes to American gas stations. Except that by breaking this commercial relationship with Russia, Joe Biden’s country has deprived itself of a refined product that it traditionally imports en masse: vacuum diesel (VGO).
To replace this source of supply, the United States is now turning to Indian refineries such as Reliance Energy or Nayara Energie, which are massively supplied with crude oil from Russia. According Telegram India, while Reliance Energy buys about 600,000 barrels of crude per day from Russia, the United States buys 200,000 barrels of finished products per day, mostly VGO from Reliance. “If you have a sophisticated refinery, you can break down VGO into more complex hydrocarbons. It is a semi-product that is excellent for producing transportation fuels. It is remarkably good for transport fuels, especially diesel,” Viktor Katona explained daily. Diesel, which is in particular demand in Europe and in particular in France.
Penalties to refine to make them really effective
This phenomenon of the communicating vessel and the reorganization of the black gold circuits on a global scale raises questions about the effectiveness of the sanctions undertaken against Russia. “Our research shows that the oil price cap and the EU embargo on Russian crude are costing Russia 160 million euros a day, says Lauri Myllivirta. Russia’s revenues from fossil fuel exports fell by 17% in December 2022, at the lowest level since the beginning of the invasion of Ukraine”.
The Finnish CREA analyst regrets the lack of resources to guarantee the application of sanctions, which is delegated at the national level. He advocates tougher penalties for breaching sanctions: “For example, the original idea was that tankers who missed the price cap would be barred from Western financial and insurance services in perpetuity, which would have been a substantial penalty. But the disqualification has been reduced to three months, which is almost insignificant, this measure must be reinforced.
A “very timid” European ceiling for Russian oil products
Lauri Myllivirta also points to the “very timid” level of the ceiling for Russian oil products proposed by the European Commission: 100 dollars per barrel. “In our report on the impact of the crude oil ban, we predicted that the price cap on petroleum products would reduce Russia’s revenue by €25 million per day, and the EU ban on refined petroleum products from Russia at 72 million euros per day, he said, explains However, this forecast was based on the assumption of a ceiling of 65 dollars per barrel for petroleum products that trade at a higher price than crude oil (especially diesel), based on a crude cap of $60 and refining costs in Russia below $5 per barrel.”
The analyst believes that eventually the sanctions will have an increasingly serious impact on the Russian economy: “Russia’s finances are weakening and the country is more dependent than ever on fossil fuel revenues. The economic repercussions of the sanctions and the war increase public spending and undermine all other sources. of revenue, such as sales, income, and corporate taxes.
Source: BFM TV
