Dr. S bushra batool
Despite facing sanctions from the U.S. and the West, Moscow is still managing to covertly increase its oil exports to China and India as the fierce war stemming from Russia’s invasion of Ukraine in 2022 rages on. In response to the Russo-Ukrainian War, the G7 finance ministers decided on September 2, 2022, to set a price cap on Russian oil and petroleum products as a form of sanctions against the Russian Federation.
The U.S. and its partners imposed a limit of approximately $60 per barrel for shipments of Russian oil to use essential western shipping services, such as insurance and tankers. The idea was to restrict the amount of Russian oil being sold internationally and also reduce Moscow’s profits from oil sales.
This is also an attempt to limit Russia’s funding for its war in Ukraine and to prevent further spikes in the 2021-2022 inflation surge. In 2022, Russia was protected from energy sanctions due to a worldwide increase in oil and gas costs.
The reason for implementing the price cap is to eliminate the extra value, ensuring that Russia’s revenues are limited and will not increase even if global oil and gas prices go up in the future. Furthermore, it will add complexity to the transportation of maritime oil for Russia and place additional limitations on the amount of oil Russia is able to sell and deliver to customers, ultimately leading to a decrease in revenue.
However, fact check tells us a different story of the results of these sanctions. The Centre for Research on Energy and Clean Air (CREA) has stated that despite almost two years passing, Western sanctions don’t seem to be affecting China and India – the top importers of crude oil globally. The international community had mixed reactions to the sanctions imposed on Russian crude oil. Under these terms, only finance companies from G-7 nations can offer transportation and other services for Russian crude.
On 3rd September 2022, French Finance Minister Bruno Le Maire stated that the proposal needs more worldwide involvement to succeed, emphasizing that it should not target Russia specifically but rather be a universal effort against conflict. In reply, Russia announced it would halt sales to nations backing the price limit. In response, a presidential decree from the Kremlin bans Russian companies and traders from selling oil to those involved in a price cap. The decree was changed in April 2023 to permit sales to “friendly countries”, like China and India, but still prohibits transactions with companies and nations that participate in the price-cap agreement.
The G7 nations and the EU choose to support the US in implementing sanctions. On the other hand, China, India, and the OPEC+ alliance oppose this decision, with the latter deeming it as an absurd proposal. While China has not signed onto the price cap, the growing volume of purchases from Russia under the cap seems to be supporting China’s push for reduced prices in upcoming shipments.
India is also in negotiations with Russia, and Russia is backing India’s tanker fleet to allow the direct shipment of Russian oil, circumventing sanctions. In July, Russia sold 47% of its crude exports by volume to China, with India following closely behind at 37%. Buyers in the European Union absorbed 7%, while Turkey got 6%. 2024 appears to be replicating an oil trading trend established last year between Moscow and Beijing, as well as Moscow and Delhi.
40% of India’s total oil purchases on the global market come from imports from Russia, which is a significant percentage. Before the Russia-Ukraine war, Delhi’s purchases of Russian oil accounted for less than 1% of its overall imports. Presently, there is a monthly oil trading collaboration between Delhi and Moscow valued at approximately $3 billion or 1.85 to 1.95 million barrels per day.
The broader discounts are still far below the limit Western countries had anticipated. This is mostly due to a fleet of dark or ‘shadow’ tankers, which are tankers with uncertain ownership structures formed through multiple entities that make it challenging to determine the true owners or controllers, hence escaping Western sanctions. CREA pointed out that 81% of Russian seaborne crude oil’s total value was carried by unofficial tankers, whereas tankers from countries enforcing the price limit accounted for 19%.
Although attempts have been made to limit the impact of ‘shadow’ tankers, implementing this has been challenging. CREA recommended that countries imposing sanctions should prohibit the sale of outdated tankers to owners registered in countries that do not enforce the oil price cap policy.
This would assist in restricting the growth of ‘shadow’ tankers that have been transporting Russian fossil fuels more frequently since their complete invasion of Ukraine. However, oil is not the sole Russian fossil fuel export making its way to China and India. Since both countries are significant coal consumers, Moscow’s coal has also made its ways to their shores.
An Indian refining source informed Reuters that India will need more Russian oil as long as sanctions do not increase further. China bought almost half of Russia’s coal exports, with India coming in second at 18%, between December 5, 2022 and the end of July 2024. Turkey, South Korea, and Taiwan make up the final three spots in the top five list of buyers, with shares of 10%, 10%, and 5% respectively. In light of all the discussion, it is evident that Russia is, to a great extent, managing efficiently Western sanctions with two importing partners, China and India having bulks of Russian crude imported, defying the aftershocks intended for Russia to upset its revenue generation from this particular sector.
The author is a Research Officer at Rabita Forum International (RFI).
