Indian Oil Products Exports [UPSC Notes]

India, along with China and Turkey, is under scrutiny from the US-led G-7 group for converting discounted Russian crude oil into refined products and exporting them to Europe. This trade, known as “clean products,” has gained attention due to concerns over circumventing sanctions on Russian oil. The potential sanctions may affect India’s lucrative fuel export business, primarily controlled by Reliance Industries.

In this article, you can learn more about this development, a topic relevant for the IAS exam international relations segment.

India’s Fuel Export Business

India earned $58 billion from petroleum product exports in FY23, accounting for 13% of its total exports. 

• The government also benefits from windfall taxes on fuel exports. As the EU barred oil product imports from Russia, European consumers turned to countries like India, China, and Turkey for their fuel supplies. 
• India’s clean product exports to Europe increased by 11 percentage points compared to the previous year.

G-7’s Targeted Sanctions and India’s Response:

• Josep Borrell, the EU’s high representative for foreign policy, aims to sanction nations involved in the resale of Russian crude oil-derived products to Europe. 
• He considers this trade a circumvention of sanctions. However, Indian Foreign Minister S Jaishankar clarified that there are no sanctions on such resale, emphasizing the transformation of Russian crude in a third country.

India’s Compliance with International Sanctions:

• Indian officials assert that India adheres to international sanctions, citing examples of ceasing oil trade with Iran and Venezuela due to US sanctions. 
• While India follows these sanctions, China continues to import oil from Iran and Venezuela.

Increase in India’s Clean Product Exports:

• India doubled its clean product exports to Europe from the previous year, reaching 25 million barrels in the February-mid-May period. 
• Diesel/gasoil accounted for over 40% of these exports, followed by gasoline and jet fuel. However, shipments slightly declined in April after a peak in March 2023.

Concerns of the EU and Increased Russian Crude Imports:

• The EU has been cautious about sanctioning the trade involving Russian oil-derived fuels reaching its member states. 
• However, the recent increase in India’s crude imports from Russia has drawn attention. Russian oil accounted for over 40% of India’s crude imports, compared to 1-2% before the Ukraine invasion.

Potential Consequences and Discussions:

• EU executive vice president Margrethe Vestager emphasized the legality of sanctions and indicated that further discussions with India would take place. 
• If the trade is not deemed legal, the EU may consider barring it altogether. Reliance Industries dominates fuel exports, while Nayara Energy follows as a distant second.

India’s Refining Capacity and Changing Trade Flows:

• India’s refining capacity, limited by growing domestic demand, affects its potential for exports. 
• However, when the European market opened in February ’23, Indian refiners reduced supplies to some countries while increasing exports to Europe. 
• Shipments to South Korea and Australia declined, while those to the Netherlands, Spain, and Belgium grew significantly.

Conclusion:

• India’s fuel export business, primarily controlled by Reliance Industries, faces potential implications due to the G-7‘s focus on sanctioning nations involved in the resale of Russian crude-derived products. 
• While discussions between the EU and India continue, the impact on India’s exports may be limited. 
• However, competition with discounted Russian fuels in traditional markets poses challenges for Reliance and Nayara. 
• India needs to explore markets that bar discounted Russian fuels but are open to accepting products made from cheap Russian crude.

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