EU Sanctions Indian Rosneft Refinery, Lower Price Cap on Russian Oil

For the first time, the 27-member European Union (EU) has imposed sanctions on an Indian oil refinery, Nayara Energy Ltd, in Vadinar, Gujarat, owned by the Russian company Rosneft, as part of its effort to cripple the Russian economy and its war effort in Ukraine. The EU has also announced a lower price cap on the Russian oil price as part of its 18th package of sanctions on Russia since Russia started its military operation in Ukraine on 24 February 2022.

India, which is the second largest importer of Russian crude oil in the world after China, is expected to benefit from lower prices on Russian oil, but its export of petroleum products to the EU may face risk.

The United Kingdom, which is not a member of the EU, has said that it will also impose sanctions on Russia. 

The United States is not a part of the latest round of EU sanctions, but President Donald Trump has said that if Russia does not reach a peace agreement with Ukraine in 50 days, then it will impose sanctions or high tariffs on countries importing Russian products.

Latest EU sanctions on  Russia 

• It has banned the import of petroleum products made from Russian crude oil by any third country to the European Union.
• However, the ban does not apply to oil refineries situated in Norway, Switzerland, Canada, the United Kingdom and the United States.
• Under the new sanctions announced, the price cap on Russian oil will be 15% below its average market price. 
• The Rosneft-owned Nayara Energy Ltd, in Vadinar, cannot sell its oil products to the European Union and the United Kingdom.
• It has also banned the transaction on Russia's Nord Stream gas pipelines under the Baltic Sea to Europe and with Russia's financial sector.
• It has also imposed a ban on Oil Tankers that carry Russian crude oil and also on two Chinese banks accused of facilitating Russian oil trade.

Implications of EU Sanctions on India 

Petroleum Product Export 

• In 2023-24, India exported $19.2 billion worth of petroleum goods - petrol, diesel and Aviation Turbine Fuels (ATF) to Europe, which declined to $15 billion in 2024-25 due to lower oil prices.
• Around $5 billion of the exported petroleum goods were made from imported Russian oil, and it could be significantly reduced due to the new EU sanctions.

Impact on India’s Oil Imports 

• India imports 85 % of its crude petroleum oil requirement.
• Russia has emerged as the largest source of crude oil to India after the Ukraine war. 
• Before the start of the Ukraine war, the share of Russian crude oil in India’s total imports was approximately 2-3%.
• After the war began, Russia offered crude oil to India at a steeply discounted price, resulting in a sharp increase in Russian oil imports by India.
• Currently, Russia’s share in India’s total oil imports is approximately 40%.
• Cheaper Russian oil imports have kept the Indian oil import bill lower and the price of oil products in India in check.
• The Indian oil refinery companies earn higher profit margins by importing cheaper Russian oil and exporting to the European Union.
• The lower price cap on the Russian oil will benefit India as it will lower the cost of the imported oil and save foreign exchange.

Problem

• The Indian refineries using Russian oil will find it difficult to sell in the European Union market, and the export may suffer.

Implications for the EU 

• The supply of cheap petroleum products by Indian refineries using Russian Oil helped European Union consumers obtain oil products at lower rates.
• Due to sanctions on India, prices in Europe may rise, leading to further inflation in an already struggling economy.
• The exempted refineries in Switzerland, Canada, and other countries have high-cost operations, and they will produce petroleum products that will be more costly than those produced by Indian refineries.

History of the EU sanctions on Russia and the Ukraine War

Since the invasion of Ukraine by Russia in 2022, the Western countries led by the United States have supported Ukraine with military aid and also imposed a series of sanctions on Russia, targeting its banks, oil, gas and other sectors of the economy.

Russian Oil and Gas Targeted 

Russia is a major global exporter of oil and gas, and its continuous exports have helped the country finance its war effort in Ukraine and maintain a stable economy.

The supporter of Ukraine wants to hit the Russian oil industry in such a way that Russia’s ability to earn foreign exchange is considerably reduced, and also maintain sufficient quantities of Russian oil in the world market so that oil prices do not increase steeply.

Hence in December 2022, the Group of Seven (G7), France, Germany, Italy, Japan, Canada, the United Kingdom and the United States decided to restrict the supply of Russian crude oil in the world market.

They imposed a maximum price ceiling on the Russian Oil supplied to third countries at $60 per barrel.

It means that if Russia sells oil to a third country using Western countries' oil tankers and insurance services, then the oil price has to be less than $60 per barrel.

However, this price cap strategy was not successful, as Russia sold oil to India and China at a price less than $60 per barrel but charged high transportation costs, ensuring that the final price was closer to the market price of the crude oil.

About Nayara Energy Limited 

The Nayara Energy Limited was formerly known as Essar Oil Limited, which started its operation in 2008.

It is situated near the Gulf of Kutch in the Vadinar district of Gujarat.

It is the second-largest single-site oil refinery in India after Reliance Industries Limited (RIL) in Jamnagar, Gujarat.

It has a capacity to refine approximately 250 MMTPA of crude oil making it the 2nd refinery largest in Asia after RIL Jamnagars refinery.It also operates around 6,7500 petrol pumps all over the country.

Rosneft owns a 49.13 per cent stake in Nayara Energy Ltd, while an investment consortium SPV, Kesani Enterprises Company, holds a 49.13 per cent stake in Nayara. Kesani is owned by Russia’s United Capital Partners (UCP) and Hara Capital Sarl, a wholly-owned subsidiary of Mareterra Group Holding (formerly Genera Group Holding S.p.A.)

European Union 

The European Union is a political and monetary Union of European Countries. 

The European Union was created by the Maastricht Treaty in 1992. The European Union came into being on 1st November 1993. 

Members - 27 European Countries

President of the European Commission: Ursula von der Leyen

Headquarters: Brussels, Belgium

Common Currency - Euro (Twenty countries of the European Union have adopted the euro).