Nayara refinery to be hit hard by EU sanctions on Russian oil

Mint

2 days ago

New Delhi: In measures targeting Russia's ability to raise revenues from its oil and energy sector in the midst of war with Ukraine, the European Union (EU) on Friday unveiled sanctions on the Rosneft-owned Nayara Energy's 20 million-tonne refinery in Vadinar, Gujarat, and lowered the price cap on Russian oil by 15% to $47.6 per barrel from $60.
It also imposed sanctions on more 'shadow fleet ships', which are largely used for moving crude oil from Russia. Kaja Kallas, EU's high representative for foreign affairs and security policy said in a post on social media platform X that the 27-nation grouping has also agreed to ban financial transactions related to Russia's Nord Stream gas pipeline.
Late on Friday night, Randhir Jaiswal, spokesperson of the ministry of external affairs, said in a statement: 'We have noted the latest sanctions announced by the European Union. India does not subscribe to any unilateral sanction measures. We are a responsible actor and remain fully committed to our legal obligations."
The development is expected to hit Nayara hard, especially its exports of petroleum products. Nayara is one of only two Indian companies, the other being Reliance Industries, which exports petroleum products from the country, since only private companies are allowed to export petroleum products. India's exports of petroleum products rose 3.4% in volume terms to 64.7 million tonnes in FY25, compared to 62.6 million tonnes in FY24, according to data from the Petroleum Planning and Analysis Cell.
To be sure, while Nayara has the largest private sector retail fuel network of the country with about 6,500 fuel bunks, its share of the domestic market is small considering around 90,000 petrol pumps in India–a market dominated by state-owned companies.
Meanwhile, according to reports, Rosneft is also looking at selling its stake in its subsidiary. In March, The Economic Times reported that Russia's Rosneft, which owns 49.13% stake in Nayara Energy, is looking to exit the Indian venture, as due to sanctions, the Russian company has not been able to repatriate earnings from Nayara Energy in the past few years.
'Petroleum product exports from Nayara's refinery to Europe would be impacted by the sanctions. Europe has been a major buyer of these products. Further, the likely talks of a stake sale by Rosneft also may be impacted," said Shashi Mathews, partner at law firm CMS Induslaw. However, he added that refiners should be able to navigate the price cap, as they have been already operating with the $60 price cap for the past few years.
'It's an evolving situation, it needs to be seen how this builds. The implementation of sanctions on the shadow fleet and the price cap would be key. Impact on supplies will raise prices," said Prashant Vasisht, senior vice president and co-group head, corporate rating, Icra.
A statement by the Council of European Union said: 'The bloc will ban the import of 'refined petroleum products made from Russian crude oil and coming from any third country – with the exception of Canada, Norway, Switzerland, the United Kingdom and the United States – thereby preventing Russia's crude oil from reaching the EU market through the back door."
Queries sent to Nayara and Rosneft remained unanswered till press time.
Experts said the move may close an emerging market for India. Europe is a key market for Indian petroleum products along with South East Asia and the US.
In a report in December 2024, S&P Global Commodity Insights had said: 'Europe is increasingly turning out to be the brightest market for Indian oil products exporters that have capitalized on the shortages of diesel and other fuels due to geopolitical tensions and are shipping plentiful cargoes, a trend that is set to spill over to next year."
It had noted that refineries in India have ramped up exports to Europe and the Mediterranean since Europe and the UK banned Russian diesel in 2023. The report added that Reliance Industries is the largest products exporter to Europe.
Kallas, who is also the vice-president of the European Commission, said on X that the EU is standing firm.'We're cutting the Kremlin's war budget further, going after 105 more shadow fleet ships, their enablers, and limiting Russian banks' access to funding. For the first time, we're designating a flag registry and the biggest Rosneft refinery in India."
According to the EU statement, the latest sanction on 105 vessels takes the total vessels under sanction to 444. These vessels will be subject to a ban on port access and on the provision of a broad range of services related to maritime transport.
'Full-fledged sanctions (asset freezes, travel bans, bans on providing resources) target Russian and international companies managing shadow fleet vessels, traders of Russian crude oil and a major customer of the shadow fleet – a refinery in India with Rosneft as its main shareholder," said the council's statement.
'With today's package, the EU is curtailing Russia's energy revenues through a number of different measures. The EU is lowering the price cap for crude oil from $60 to $47.6 per barrel, to align it with current global oil prices and is introducing an automatic and dynamic mechanism to modify the oil price cap and ensure that this price cap is effective. Oil exports still represent one third of the Russian government's revenues," said the EU statement.
Experts said the sanctions on shadow fleet ships may impact supply of Russian crude and lift prices. On Friday, global crude prices increased about 1%. At the time of writing, the September contract of Brent on the Intercontinental Exchange was at $70.16 per barrel, higher by 0.92% from its previous close.
Similarly, the August contract of West Texas Intermediate (WTI) on the NYMEX rose 1.13% to $68.30 per barrel.
With US President Donald Trump warning of sanctions on countries that import Russian oil, Union minister for petroleum and natural gas Hardeep Singh Puri had said on Thursday while addressing an energy conference in New Delhi that India is not worried about any such penalties and will navigate any eventuality as there is enough supply in the market.
Trump recently said the US could impose 100% tariffs on Russia and 'secondary tariffs" on countries importing its oil—mainly China and India—if Moscow didn't agree to a deal to end the Ukraine war in 50 days.
Responding to a question on India's likely measures in case secondary sanctions were imposed on Russian oil imports, Union minister Puri said: 'My own view is the price of oil will come down. It will come down only because there is more oil available in the international market. There is more oil coming on the global market from the western hemisphere. I mean countries such as Brazil, Guyana and Canada. They're not even OPEC+ members. I'm not worried at all. If something happens, we'll deal with it."
He added that India felt 'no pressure" and had enough supply options to ensure uninterrupted availability even in turbulent times.
On Thursday, the ministry of external affairs responded to a recent remark by NATO secretary general Mark Rutte's wherein he had warned of secondary sanctions against countries buying Russian oil.
Since the start of the Russia-Ukraine war, sanctions-hit Russia has emerged as the top supplier of oil to India, accounting for about 36% of India's total oil imports. In February 2022 when the war started, it accounted for just 0.2% of India's total oil imports.