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Campaigners have criticised a sanctions “loophole” that allows western countries to import fuel refined in India but that originated in Russia, warning of potential compliance issues and environmental hazards. 

The volume of Russian crude imported by refineries in India has grown rapidly since the invasion of Ukraine last year, and the subsequent introduction of western restrictions on buying Russian-origin oil and petroleum products, a report by campaign group Global Witness says. 

Refineries that “imported almost no Russian crude before the war are now running on it”, the organisation says, with India’s purchases of Russia-origin oil nearly 20 times higher in January 2023 than a year before. 

“Thanks to a loophole in Western sanctions, once Russian crude has been refined, it can be shipped and imported anywhere in the world,” it says. 

Global Witness notes the UK has increased imports of diesel and jet fuel from India, including refineries that sourced as much as half of their inputs from Russia.  

Nearly 5% of all UK refined product imports were purchased by two UK traders from two Indian producers over the past year, the report adds. 

There are no allegations of wrongdoing against traders or refineries, as India has not imposed sanctions on Russian oil, and Global Witness notes that these flows are part of the “intended effect of the sanctions”. 

China, Turkey, Singapore and the United Arab Emirates have also increased imports of Russian crude since the outbreak of the war, with corresponding rises in the sale of refined products to the US, EU countries and Australia, according to a report last month by Crea, a Finnish NGO.   

US authorities have long said the primary purpose of the restrictions is to keep oil flowing, stabilising global energy prices, while depriving President Vladimir Putin’s regime of revenue from vital fuel exports. 

As India is reportedly purchasing crude at a discount, experts argue that policy is proving a success. Jason Bordoff, founding director of the Center on Global Energy Policy at Columbia University and a former Obama administration advisor, tells Saudi publication Al Arabiya these flows are “a feature, not a bug, in the plan of Western nations”. 

However, Global Witness suggests the movement of fuel produced from Russian crude is creating wider complications, including around flag registration and insurance. 

The concerns stem from Russia’s use of a so-called ‘shadow fleet’ of vessels. As western ship management companies, insurers and trade finance lenders are prohibited from providing services in support of Russian fuel exports, the country has obtained its own vessels – typically ageing tankers – to transport oil instead. 

Global Witness says Gatik Ship Management, a company formed last year but whose website remains under construction and could not be contacted for comment, has acquired dozens of vessels valued at over £1bn. 

Gatik has reportedly encountered problems with its insurance and flag registry status. In April, it emerged that members of the International Group of P&I Clubs withdrew insurance cover from almost all tankers owned by the company, a decision taken months earlier, TradeWinds reported. International Group did not respond when contacted by GTR. 

Meanwhile, Lloyds List reported last month that the UK-based St Kitts & Nevis International Registry has deflagged ten Gatik-owned tankers. When contacted, a spokesperson for the registry could not comment on commercial operations of member vessels, adding: “We can confirm that we take compliance with international law very seriously.” 

Those vessels then registered with a ship registry launched by Intershipping Services in the UAE in 2019, on behalf of the government of Gabon. Intershipping Services did not respond when contacted and is not accused of any wrongdoing. 

Global Witness suggests the growing wariness around providing services to Gatik indicates companies’ “suspicions that they are buying Russian oil above the G7 price cap”. US authorities warned last month that American companies may be unwittingly facilitating trade in Russian oil above the price cap of US$60 per barrel. 

The use of ageing tankers has also triggered environmental concerns. Global Witness says the average age of Gatik’s tankers is 17 years, which would ordinarily mean they are “headed for a scrapyard”. 

“Despite their high risk, they’ve been given a second life shuttling oil from Russia to India,” it says. “Leaving Russia’s Baltic ports, they make their way through the North Sea, into the English Channel, passing just off the coast of Eastbourne, Brighton and Cornwall, raising the risks of a disastrous oil spill that would devastate British and French coastlines.” 

In the event of a spill, uncertainty over insurance arrangements means it is “unclear” who would be expected to pay for any clean-up operation. 

Speaking at the Financial Times Commodities Global Summit in March this year, Trafigura’s co-head of oil trading, Ben Luckock said the movement of old tankers through European waters is proving a concern. 

Historically, he said, there was an “incredibly efficient, global, liquid energy logistics chain, and Russia was certainly part of that”, using “the right types of vessels, [that] would move in a timely manner, and you had people who had done this for a long time”. 

The emergence of new companies facilitating Russian oil exports has “changed the logistics skill set around Russian oil in a very short period of time”, he said. 

“I hope there isn’t a problem,” he added.