Row over Russian energy sanctions gatecrashes EU-India summit

BRUSSELS — Talk at an EU-India summit on Tuesday was meant to be about tech and trade. But the first high-level meeting of its kind ended up being overshadowed by an apparent loophole in Western sanctions against Russia that allows countries like India to buy up cheap oil, refine it, and then ship it back to Europe for a hefty profit.

Speaking at a press conference in Brussels, Indian Foreign Secretary Subrahmanyam Jaishankar denied criticism that his country was helping Moscow circumvent sanctions. Saying he did not “see the basis” for such allegations, New Delhi’s top diplomat said EU rules mandate that “if Russian crude is substantially transformed, it’s not treated as Russian anymore.”

In earlier comments to the Financial Times the EU’s foreign policy chief Josep Borrell broke ranks to say that Brussels should move to crack down on third countries refining Russian oil and selling the products on to the bloc. “If diesel or gasoline is entering Europe … from India and being produced with Russian oil, that is certainly a circumvention of sanctions and member states will have to take measures,” he said.

The row intruded on what was supposed to be an upbeat summit as Brussels hosted the first meeting of the newly created EU-India Trade and Tech Council, designed to foster cooperation between two of the world’s largest democracies. It comes in a week of hectic summit diplomacy that will culminate in a G7 summit in Japan where Russia sanctions will top the agenda.

Indian Trade Minister Piyush Goyal said the EU-India relationship has the potential to be the “defining partnership of the 21st century.” The EU is meanwhile keen to build closer ties with India in the aftermath of Russia’s invasion of Ukraine and has also moved to resume negotiations with India on a stalled free trade deal.

However, data from shipping platform Kpler, seen by POLITICO, shows that the South Asian nation has become one of the biggest winners from energy sanctions imposed by the West on Russia in the wake of the war in Ukraine. No longer competing for supplies with Europe and other major economies, India has saved around $89 per ton of crude, an analysis from one state-controlled bank reports.

As a result, since the start of Moscow’s full-scale invasion, Indian imports of Russian crude oil have shot up from around 1 million barrels a month to more than 63 million barrels in April alone.

At the same time, its lucrative exports of refined oil products to the EU have skyrocketed, raising concerns that it is simply selling on processed Russian supplies.

European imports of diesel from India saw an almost tenfold increase last month compared to the same time last year, with member states buying over 5 million barrels, while the flow of jet fuel to the Continent soared by more than 250 percent to a total of 2.49 million barrels.

‘Legal but immoral’

In February, the EU imposed a ban on Russian refined oil products, building on an embargo on crude imposed last year. However, fuel from Russian oil produced by refineries in third countries has proven harder to crack down on.

“We have enough evidence that some international companies are buying refinery products made from Russian oil and selling them on to Europe,” Oleg Ustenko, an economic adviser to Ukrainian President Volodymyr Zelenskyy, told POLITICO in March. “It’s completely legal, but completely immoral. Just because it’s allowed doesn’t mean we don’t need to do anything about it.”

Indian Prime Minister Narendra Modi has consistently defied pressure to impose sanctions on Russia or scale back close economic ties with the Kremlin. “India is on the side of peace and will remain firmly there,” he insisted last September, arguing that his country was under no obligation to weigh into the conflict.

“The Indian government has clearly said the war is a European issue and it isn’t taking sides,” said Purva Jain, a New Delhi-based analyst with the Institute for Energy Economics and Financial Analysis.

“When geopolitical disturbances happen, economic opportunities are created. Ultimately these decisions are being driven by energy security concerns. We have a huge population here that is energy starved and so our primary focus is meeting their needs,” she added.

The discussion on sanctions is particularly sensitive given the EU is currently negotiating its 11th sanctions package against Russia, which focuses on fighting the circumvention of existing economic restrictions. Brussels is considering also hitting third countries with penalties if they are found to be breaking its rules. Although India is not top of mind in that discussion, it could open the door for future measures against New Delhi.

Speaking alongside Foreign Minister Jaishankar, the EU’s Commissioner for Competition Margrethe Vestager sought to downplay Borrell’s comments. If there are concerns to be raised, she said, “it will be with an extended hand, not a pointed finger.”

Another thorny issue between the two powerhouses is the bloc’s proposal to impose a tariff of up to 35 percent on carbon-intensive imports, including cement and steel, which are among New Delhi’s main trade offerings.

New Delhi is planning to take the dispute with Brussels to the World Trade Organization to overturn the plans, which it says amount to protectionism, Reuters reported earlier. The two sides have now agreed to discuss the upcoming measure in the Trade and Tech Council, as POLITICO previously reported. “I am sure the intention is not to create a barrier to trade but to find a way forward,” said Goyal.