EU fuels crude awakening for Nayara Energy, but Reliance feels the heat too

Economic Times

4 days ago

New Delhi: The European Union's sanctions against Nayara Energy will be a setback to the company and the ban on fuels made from Russian oil poses a challenge to Reliance Industries Ltd (RIL), with both up against the threat of being shut out of the bloc, executives and analysts said. The move also complicates Russian energy giant Rosneft's reported plans to divest its 49% stake in Nayara. RIL and Nayara are India's top two fuel exporters.Reliance, which has a term deal to buy substantial volumes of crude from Rosneft, now faces a tough choice: either give up discounted Russian oil or forfeit access to the lucrative European diesel market-both options likely to dent its refining margins.On Friday, the EU rolled out its 18th package of sanctions, slashing the price cap on Russian oil to $47.6 per barrel, from $60 currently, and targeting the shadow fleet involved in its transport. The price cap is effective September 3.
While the US hasn't backed the EU move, it is ramping up pressure separately by threatening a 100% secondary tariff on Russia unless it reaches a peace deal with Ukraine. The EU has announced 'full-fledged sanctions (asset freezes, travel bans, bans on providing resources)' against Nayara Energy, as well as international firms managing shadow fleet vessels and trading Russian crude oil. 'Nayara may struggle to access banking channels for various transactions. Banks with exposure to Europe may not want to deal with Nayara,' said an industry executive. 'It also risks losing technical support from European technology licensors critical to its refinery operations,' the executive added, while noting that the company may find alternative arrangements to avoid disruption.
Nayara will also be barred from exporting refined products to Europe. Reliance, India's largest exporter of refined fuels, has for years relied on Europe as its most profitable market. Some industry executives said the EU may find it difficult to enforce the import ban, as Indian refiners rarely deal directly with European buyers and rely heavily on intermediary traders.
Neither Nayara Energy nor Reliance responded to ET's queries. One industry executive said that these are broader policy issues that must be addressed at the government level. The Indian government pushed back against the sanctions, saying energy security was of paramount importance.
'India does not subscribe to any unilateral sanction measures,' Ministry of External Affairs (MEA) spokesperson Randhir Jaiswal said Friday. 'We are a responsible actor and remain fully committed to our legal obligations. The Government of India considers the provision of energy security a responsibility of paramount importance to meet the basic needs of its citizens. We would stress that there should be no double standards, especially when it comes to energy trade.'Sources said the EU move was being seen as hypocritical, suggesting that European states relying on Rosneft would have discovered alternative sources before the decision was taken.
On Thursday, the MEA had cautioned against 'double standards' while pushing back against the North Atlantic Treaty Organisation (NATO) secretary general's threat of possible secondary sanctions on India for maintaining trade ties with Russia.
On Friday, the EU also introduced 'an automatic and dynamic mechanism to modify the oil price cap' to ensure it consistently stays below market levels, unlike the past two years, when the $60 cap occasionally exceeded market prices. 'For a country like India, it should further increase the attractiveness of Russian oil where discounts of late had reduced,' said MK Surana, former chairman of Hindustan Petroleum. This will essentially benefit state-run firms like Indian Oil, HPCL and BPCL as they barely export to Europe and have been substantial buyers of Russian oil. 'Most Russian purchases by Indian refiners are on a delivered basis so suppliers and traders will have to figure out the way to navigate through sanctions on vessels,' Surana said.With the US not backing the latest sanctions, enforcing the price cap will be a challenge for the EU. Since oil is priced in dollars and dollar payments are cleared through the US, Washington retains greater enforcement capability over any cap violations.While the US hasn't backed the EU move, it is ramping up pressure separately by threatening a 100% secondary tariff on Russia unless it reaches a peace deal with Ukraine.The EU has announced 'full-fledged sanctions (asset freezes, travel bans, bans on providing resources)' against Nayara Energy, as well as international firms managing shadow fleet vessels and trading Russian crude oil. 'Nayara may struggle to access banking channels for various transactions. Banks with exposure to Europe may not want to deal with Nayara,' said an industry executive. 'It also risks losing technical support from European technology licensors critical to its refinery operations,' the executive added, while noting that the company may find alternative arrangements to avoid disruption.Nayara will also be barred from exporting refined products to Europe. Reliance, India's largest exporter of refined fuels, has for years relied on Europe as its most profitable market. Some industry executives said the EU may find it difficult to enforce the import ban, as Indian refiners rarely deal directly with European buyers and rely heavily on intermediary traders.Neither Nayara Energy nor Reliance responded to ET's queries. One industry executive said that these are broader policy issues that must be addressed at the government level. The Indian government pushed back against the sanctions, saying energy security was of paramount importance.'India does not subscribe to any unilateral sanction measures,' Ministry of External Affairs (MEA) spokesperson Randhir Jaiswal said Friday. 'We are a responsible actor and remain fully committed to our legal obligations. The Government of India considers the provision of energy security a responsibility of paramount importance to meet the basic needs of its citizens. We would stress that there should be no double standards, especially when it comes to energy trade.'Sources said the EU move was being seen as hypocritical, suggesting that European states relying on Rosneft would have discovered alternative sources before the decision was taken.On Thursday, the MEA had cautioned against 'double standards' while pushing back against the North Atlantic Treaty Organisation (NATO) secretary general's threat of possible secondary sanctions on India for maintaining trade ties with Russia.On Friday, the EU also introduced 'an automatic and dynamic mechanism to modify the oil price cap' to ensure it consistently stays below market levels, unlike the past two years, when the $60 cap occasionally exceeded market prices. 'For a country like India, it should further increase the attractiveness of Russian oil where discounts of late had reduced,' said MK Surana, former chairman of Hindustan Petroleum. This will essentially benefit state-run firms like Indian Oil, HPCL and BPCL as they barely export to Europe and have been substantial buyers of Russian oil.'Most Russian purchases by Indian refiners are on a delivered basis so suppliers and traders will have to figure out the way to navigate through sanctions on vessels,' Surana said.With the US not backing the latest sanctions, enforcing the price cap will be a challenge for the EU. Since oil is priced in dollars and dollar payments are cleared through the US, Washington retains greater enforcement capability over any cap violations.