2024-02-19 14:47:56
Russia is entering its third year of war in Ukraine with an unprecedented amount of money in its coffers. Part of that is due to India’s record $37 billion in crude oil sales last year. This is according to an analysis showing that some of the crude oil is refined from India and then exported to the United States worth more than $1 billion.
This flow of payments, in favor of Moscow, comes from India increasing its purchases of Russian oil more than 13 times. This reveals the Center for Energy and Clean Air Research (CREA). Thus, US partner New Delhi replaces Western buyers who would buy oil at significantly lower prices because of sanctions on Russia.
Sales of Russian crude oil to India are not subject to sanctions and are completely legitimate. However, researching ship routes is difficult. The shipments are believed to be made via a “shadow fleet” of tankers. It was specifically created by Moscow to try to disguise who it trades with and how, increasing the Kremlin’s profits.
An example of this complex trade may be the case off the Greek port of Gythio earlier this month. Then two oil tankers are positioned side by side for ship-to-ship exchange of goods. This involves the transfer of crude oil between vessels, sometimes with the aim of disguising its origin and final destination.
The two tankers have an interesting history. They leave Russia weeks early. One is owned by an India-based company accused of violating sanctions, and the other is owned by a subject of separate US sanctions. This is according to shipping monitoring firm Pole Star Global.
“Transfers are sometimes done legally, but they are also used as an illegal tactic to avoid sanctions,” explains expert David Tannenbaum. “This complicates the shipping game, confusing authorities about where this oil is coming from and who is buying it.”
Dozens of such transfers take place each week in Greece’s Laconian Gulf, a convenient waypoint on the way to the Suez Canal and Asian markets.
India justifies its purchases from Russia as a means of keeping global prices low because it is not competing with Western nations for Middle Eastern oil. “If we start buying more oil from the Middle East, it won’t be $75 or $76. It will be $150,” says Indian Petroleum and Natural Gas Minister Hardeep Singh Puri.
The CREA analysis estimates that the US was the largest buyer of Indian refined products made from Russian crude oil last year. The purchases are worth $1.3 billion between early December 2022, when the price cap is in place, and the end of 2023. The organization’s estimates are based on publicly available shipping and energy data.
The value of these petroleum product exports increases significantly when US allies, who are also imposing sanctions on Russia, get involved. In 2023, these countries imported $9.1 billion worth of petroleum products made from Russian crude oil, a 44% increase over the previous year.
Moscow found a way to get rich from this process of refining and exporting. One of the Indian refineries receiving Russian oil is in Vadinar and is run by a company called Nayara Energy. It is 49.1% owned by the Russian state oil giant Rosneft. The U.S. imports $63 million worth of petroleum products refined at Vadinar in 2023, and about half of the crude oil used at the plant is Russian.
Exports from Vadinar generate significant tax revenue for the Kremlin in the form of taxation on exported Russian oil. And also through the profits made by Rosneft through refining and reselling to Moscow’s Western enemies.
Still, analysts say the gains to be made from even the slightest evasion of sanctions against Russia are huge. This is because of the significant sums involved in trading the cargo of a single oil tanker. “The temptation to do this is huge for traders. They could make 10 to 40 million within four or five months,” said one of the researchers.
Earlier in February, the US Treasury introduced new sanctions against ships and companies suspected of helping to transport Russian oil.
The United States is creating a coalition of countries in late 2022 that agree not to buy Russian oil above $60 a barrel. The countries also bar their shipping companies and insurance firms from trading Russian oil above that price.
“The price ceiling is the real reason for the creation of the ‘shadow fleet,'” commented Victor Katona, head of crude oil analysis at trade research firm Kpler. “The longer the supply chains, the more difficult it is to distinguish ship-to-ship transfers. This makes it more difficult to determine the real price of a Russian barrel.”
Tannenbaum suspects that the main motive for these transfers is to avoid sanctions, as almost all vessels have ties to the US or the European Union and would be subject to the price cap.
The “Shadow Fleet” enables Russia to create a parallel shipping structure that avoids Western sanctions. The fleet has hundreds of tankers using complex routes. Daniel estimates that it grew to 1,800 ships last year, CNN reports.
The net impact of India’s crude oil purchases eases the pressure Russian President Vladimir Putin is feeling from oil sanctions. Russia’s federal revenue is set to reach a record $320 billion in 2023 and is expected to grow further. Roughly a third of the money was spent on the war in Ukraine last year, according to some analysts, and more is still earmarked to finance the conflict in 2024.
The funds at the Kremlin’s disposal put Moscow in a better position to wage war than Kiev, which is struggling for the necessary flow of Western money.
According to an analysis of public data by the Russian Finance Ministry by economist Howard Schatz, Russian federal revenue and spending are at their highest in 2023. That shows the cost of the war, but also the hit to oil revenue from the sanctions.
“Despite the jump in revenue, the federal budget deficit was the third highest, larger only in 2022 and 2020,” he says. “Taxes on domestic production and imports are both high and effective.” According to the economist, this means that Russia is making its own population pay for the war with Ukraine