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EU and US policymakers are considering closing a sanctions “loophole” that has seen Indian refineries continue to purchase significant quantities of Russian oil while exporting refined products to Europe. 

In the wake of western restrictions on direct purchases of Russian crude, introduced swiftly after the country’s invasion of Ukraine in February last year, India stepped forward as a willing alternative buyer.  

Kpler data analysed by Centre for Research on Energy and Clean Air (CREA), a Finnish research organisation, shows that in September this year, India imported around 42 million barrels of crude from Russia, a year-on-year increase of 44%. In the five months prior to the conflict, imports averaged less than 1.5 million barrels per month. 

At the same time, the EU has ramped up its purchases of diesel, jet fuel and gasoil produced by refineries in India. Oil product imports from India were nearly 30% higher in September than a year ago, and more than 250% higher than the monthly average across Q1 last year. 

In May, campaign groups warned the trend represents a sanctions “loophole”, with the import of refined fuels from non-sanctioned countries falling outside the restrictions – even if the oil used is of Russian origin. 

The EU’s high representative for foreign policy, Joseph Borrell, said at the time the practice is “certainly a circumvention of sanctions” and urged member states to “take action”. No further measures have been introduced, however. 

Speaking to GTR, a European Commission spokesperson says policymakers are now “working with our friends and partners to seek solutions to continue reducing the revenue of the Russian regime”. 

“The aim of EU sanctions on Russian oil and of the G7 price cap is to decrease the revenue of the regime, which is being used to finance its war of aggression against Ukraine,” they say. 

“While India is entitled to have its own commercial relationship with Russia and on the letter Indian refined products as such are not sanctioned within the EU, the fact that Russian oil is at the origin of these products certainly goes against the aim of our sanctions.” 

It is unknown whether fuel produced in India and exported to the EU is of different origin to products used domestically or exported elsewhere. 

But for Isaac Levi, CREA’s team lead for Europe-Russia policy and energy analysis, the effect is the same, driving up overall demand for Russian crude and preserving a vital source of revenue for the country. 

“Crude oil is going into these countries and they’re exporting refined products, so Russia is able to sell higher quantities of its oil and therefore doesn’t have to offer such large discounts to find willing buyers,” he tells GTR.  

“Russia is able to increase the price and volume of oil it is selling, and this is a huge source of finance for the war.” 

Lela Stanley, co-lead of Global Witness’ Stop Russian Oil project, adds that “refining loopholes” in western sanctions regimes “keep money flowing to the Kremlin and funding its war on Ukraine”. 

“If an NGO like Global Witness can track this oil trade, G7/EU countries certainly can,” she tells GTR. “What’s been missing is the political will to do so.” 

 

Targeting refineries 

In some cases, the EU has introduced sweeping prohibitions on purchases of goods that contain Russian inputs. For example, its 11th package of sanctions demands importers prove that products they buy contain no Russian-origin iron and steel, even if they are bought from a non-sanctioned country. 

Equivalent measures for oil products might be more impractical. US sanctions guidance states that even if produced from Russian crude, fuels refined elsewhere have undergone a significant enough transformation to be considered of non-Russian origin. It can also be difficult to trace exactly where inputs originate. 

“People have asked how you would know products are actually made from Russian molecules, but I would say that’s not so much the focus,” Levi says.  

“It doesn’t really matter whether that molecule of Russian oil is being consumed as fuel domestically in India, and the exports going to the EU are from Saudi Arabia; it’s an outlet for Putin to sell oil at higher prices and quantities.” 

Instead, calls are growing to expand the sanctions regime so that EU or US companies would be prevented from importing fuel originating in refineries relying on crude brought in from Russia. 

In the US, Congressman Lloyd Doggett is pushing for fresh legislation that would ban imports from any such refinery. 

He told BBC Newsnight in August that the practice is “really very similar to money laundering” and that ultimately, Russia “gets the money”. 

“It doesn’t make any difference whether it’s crude or refined,” he said. “We need to plug this loophole and I will be calling on the administration to do this… but also entering legislation that would call on banning imports from any refinery that has Russian oil.” 

Stanley says Global Witness is “excited about movement in the US to close the loophole here… and hope the EU will follow suit”. 

CREA’s Levi adds: “My reflection is something like this could be plausible for the EU. It is something that needs to be monitored and enforced, of course, but these refineries are huge, they can’t move, and governments can track the shipments coming into them.” 

The impact of targeting refineries would likely go beyond India. EU and G7 member states have also increased refined fuel imports from China, Turkey, the UAE and Singapore since the onset of war, CREA data shows. 

Yet in the year following the invasion, seaborne Russian crude exports to those four markets, as well as India, increased by 140% in volume. 

The European Commission spokesperson did not comment on targeting refineries, but said: “Circumventing EU sanctions is a crime. That is why the Commission is working hard to crack down on it.”