(MENAFN- The Arabian Post)

By Nantoo Banerjee

The European Union seems to have arrogated itself with extrajudicial power to prevent outside nations from purchasing Russian oil. It has no locus standi to impose its will on countries which are not members of EU. Thus, the latest expansion of the EU sanctions targeting Russian energy exports can legally cover only its 27 member countries and entities operating within the EU and not beyond. It is free to implement such decisions as fixing price caps and restrictions on shipping and insurance for Russian oil sold to EU countries, it cannot legally prohibit non-EU countries from buying Russian oil on the global market using non-EU flag carriers and insurers. The EU has no jurisdiction over countries such as India and China. Together, the two countries accounted for around 85 percent of Russia's crude oil exports in the month of June, last.

It is also illegal if the EU tries to shut down the Gujarat-based Nayara Energy (formerly Essar Oil), in which Rosneft, the Russian oil giant, holds a 49.13 percent stake, or tries to prevent Indian oil refineries from importing crude oil from Russia. Reliance Industries (RIL) is India's largest importer of Russian crude oil for processing and exporting refined products. RIL shipped an average of 2.83 million barrels of diesel and 1.5 million barrels of jet fuel per month to Europe in the first seven months of this year, according to London Stock Exchange Group (LSEG) ship tracking data. Rosneft is present in Singapore through its subsidiary, Rosneft Singapore Pte. Ltd., to manage regional projects and develop international trade in oil and petroleum products as part of Rosneft's strategic focus on the Asia-Pacific region, which is expected to see significant growth in energy consumption. It also has a joint venture with PetroChina to build a refinery and petrochemical complex in Tianjin, China.

The EU, in its 18th package of sanctions against Russia, approved on July 18, has banned imports of refined petroleum products made from Russian crude coming from third countries although it excluded a handful of Western nations, including Norway, the UK, Switzerland, Canada and the US. It banned vessels from accessing EU ports and docks, or undertaking ship-to-ship transfers of oil in a bid to shut down the so-called“shadow fleet” of older oil tankers which are reportedly used to transport Russian oil and circumvent sanctions. It may be noted that the US has somewhat resisted the action, leaving the EU to move forward on its own, with limited power to enforce the measure because oil is largely traded in dollars, for which payment clearing is controlled by US banks. The EU's new package of sanctions is most unlikely to hit Russia's oil and gas exports. India and China are expected to continue buying discounted Russian crude although some Indian refineries, such as RIL, will find it difficult to re-export processed Russian crude to EU member countries.

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RIL may have to find new ways or new destinations to re-export processed Russian crude which may be further discounted after the fresh EU sanctions or face a big financial blow. As a whole, the Indian refinery industry will have to find ways to re-export refined Russian crude oil if they desire. This may not be an easy task. India was a supplier of refined petroleum products worth $15 billion annually to Europe. India imported crude oil worth US$50.3 billion from Russia in 2024-25. The share of Russian oil in India's crude oil basket is more than 44 percent. Several non-EU countries import processed crude oil, particularly refined petroleum products derived from Russian crude. India, China, and Turkey are significant buyers of Russian crude oil and refined products. Other notable processed crude oil importers include South Korea and Taiwan. The latest EU package of sanctions will make Russian crude oil even cheaper. It lowers the price on Russian crude to $47.60 a barrel from $60. The new cap, which takes effect on September 3, also includes a mechanism to ensure it is always 15 percent below average Russian crude prices.

According to the International Energy Agency (IEA), Russia earned around $192 billion last year from selling oil. Cutting a part of that may mean a loss to the country's export revenue, but it could also be at the cost of the rest of the world with spiking oil prices globally if the export of Russia's more than seven million barrels of oil per day abruptly disappears. Anyway, India and China, the two top importers of Russian oil, are most unlikely to go by so-called universal ban on import of Russian oil imposed by the EU or the US threat to order such a ban in due course to force a truce in the Russia-Ukraine war. Incidentally, both India and China continue to have good relations with Ukraine. Last year, India's imports from Ukraine were valued at $1.036 billion, while India's exports to Ukraine were $0.187 billion. The total trade turnover between the two countries for the same period was $1.224 billion. China's imports from Ukraine totalled US$2.68 billion, according to the UN COMTRADE database.

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So far, both India and China appear to be unfazed by the EU ban on Russia's oil and gas exports. India's Petroleum Minister Hardeep Singh Puri thinks the market would more or less continue to operate as usual. The EU lens on Rosneft is a concern. Rosneft was believed to be in talks with some potential Indian buyers, including RIL, to sell off its majority stake in Nayara Energy, even before the EU contemplated further tightening the ban on Russian oil exports. The Indian petroleum minister seems to be generally happy that oil markets have not hardened following the announcement of fresh EU sanctions on Russia. Although India's $15-billion refined petroproducts export to the EU will take a hit, the country is already exploring new markets for the export of refined petroleum. The export earning, last year, was worth as much as $85 billion. Given the current geopolitical situation, import-based India needs to work out a strong strategy to protect its energy security as well as export trade. (IPA Service )

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