Rystad: New EU sanctions hit India's Nayara refinery
The latest round of European Union (EU) sanctions on Russia took aim at Nayara Energy, a major private refiner in India with deep financial ties to Moscow, drawing strong condemnation from New Delhi and raising concerns about future trade flows in the global oil market.
The sanctions package imposes bans on exports of refined petroleum products derived from Russian crude, financial and shipping restrictions, and a dynamic price cap on Russian crude, a report form Rystad Energy noted.
Nayara, in which Russian oil major Rosneft holds a 49.13% stake, has become the immediate focal point of the measures due to its structural reliance on Russian feedstock. These measures are set to isolate Nayara from the European distillate market within a transition period of a few months.
According to Rystad Energy’s senior vice-president for oil markets, Pankaj Srivastava, the impact on global oil flows is likely to be modest, due to India’s decreasing exposure to the European product export market. The flexibility to use India’s domestic market and alternative destinations for middle distillate disposal minimizes the ripple effect of these sanctions on a broader scale.
“The EU’s robust sanctions on Russia and the US call for tariffs on buyers of Russian oil are twin measures to place pressure on not only Russia, but China and India, with the goal of breaking apart their integrated markets. China has better leverage in this scenario, so the focus has shifted to India’s Nayara refinery. However, given the transition time available, multiple options on crude sourcing, and product disposal for India, the impact on the country will likely be limited. Russia, on the other hand, will face significant impacts contingent on peace negotiations," Srivastava said.
India has ramped up Russian crude imports in recent years, lured by steep discounts and the suitability of Russian barrels for middle distillate refining. Russian oil now accounts for 30-35% of India’s total refinery runs, highlighting the strategic significance of discounted Russian crude to the country’s refining sector, Rystad noted.
The Indian government has strongly condemned the EU’s unilateral sanctions imposed on Nayara Energy, calling them extraterritorial and inconsistent with international norms. Both Nayara Energy and its Russian stakeholder Rosneft are reportedly exploring legal avenues to challenge the sanctions and protect their commercial interests.
To navigate the fallout, Nayara is expected to pivot aggressively toward India’s domestic market through its network of 6,500 retail outlets, while also expanding exports to the Middle East, Africa, and Southeast Asia.
Evolving implications
Currently, India’s major public sector refiners are not included in the EU sanctions, as they are not directly associated with Russian entities.
The other major private refiner in India, Reliance Industries Ltd. (RIL), is closely monitoring the evolving implications of the EU’s sanctions package. Although not directly targeted, RIL remains concerned about the broader risk of secondary sanctions, which could affect its access to European markets if its exports are deemed to contain Russian-origin crude derivatives.
In the case of non-Russian entities like Reliance and other producers, a critical challenge lies in the definition and verification of product origin. While the sanctions prohibit imports of refined products made from Russian crude—even when processed outside Russia—the actual traceability of crude origin in refined products is technically ambiguous. Refineries can operate in "blocked mode," whereby Russian and non-Russian crudes are processed in separate campaigns, allowing producers to generate “clean” barrels unlinked to sanctioned feedstock.
Reliance, with a massive refining capacity of about 1.2 million b/d across its twin refineries at Jamnagar, has the flexibility to segregate crude sourcing and operate in blocked mode of operations. The company has signed a deal with Rosneft for import of up to 500,000 b/d of Russian crude, hence does not fall into the similar category as Nayara.
This operational duality offers RIL the ability to process non-Russian crudes for EU-compliant exports, while leveraging Russian discounts for products targeted at Middle East, African, or Southeast Asian markets, according to Srivastava.
“The EU sanctions on Nayara and possible implications on Reliance are expected to deprive the European market close to an average 230,000 b/d of middle distillate in the post-Dangote era without creating many ripples on the product side. The domestic market and alternate product disposal strategy would be key for maneuvering through this situation. The supply side also does not show major concerns with upcoming OPEC+ supply increase and the Indian government’s stance on these sanctions being unilateral, ensuring supply of Russian crude at a more discounted price,” Srivastava said.