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razom we stand
Block the Black Sea Pipeline for Putin's War Chest
Russia Forced to Move Supply Chains Due to U.S. and European Embargo
In a strategic move starting December 5, 2022, the European Union implemented a sea route ban on Russian oil imports, reshaping the global oil landscape. Yet, rather than achieving a seamless transition, this embargo has sparked intricate manoeuvres, especially in the Black Sea, casting shadows on the efficacy of sanctions and Europe's energy security.
The E.U.'s embargo to curtail Russia's energy export revenues and support Ukraine in its struggle has triggered seismic shifts in the global oil market. The Black Sea, once a crucial route for Russian oil exports, has become a stage for intricate manoeuvres in energy policy.
Together, the E.U., alongside the United States and G7 counterparts, established a mechanism to cap the price of Russian oil exported to non-sanctioning countries. This mechanism includes a ban on maritime services for the transportation of Russian oil to third countries and insurance for cargo if their price exceeds a specific limit—a "ceiling" or price cap. The E.U. has set this ceiling at $60 per barrel.
Despite the embargo, the trade in oil persists, and the politics and economics of the Black Sea are becoming increasingly pivotal to the region.
This move, aimed at curbing Russia's revenues from energy exports and supporting Ukraine in the ongoing war, has set the stage for a complex dance in energy policy. As a result of the E.U. and G7 embargo on Russian oil imports via sea routes, the Black Sea was transformed into a hub of strategic importance. Despite the restrictions, Russian oil continued to enter the world markets through four key shipping points: Novorossiysk, Taman, Tuapse, and ship-to-ship transfer.
The volumes of transportation through these ports since the embargo indicate that the Black Sea remained a vital channel for Russian oil exports. These manoeuvres, often facilitated by both European and non-European shipowners, caused considerable concern among politicians and experts, as they undermined the effectiveness of the sanctions and raised new questions about the security of Europe's energy supply.
Who Is Transporting Russian Oil?
Although the embargo was supposed to stop Russian crude oil exports, they are vulnerable to restrictions, according to the Black Sea News and the Institute for Black Sea Strategic Studies.
Who transported Russian crude oil from Black Sea ports after the E.U. and G7 embargo was imposed.
(Image: Black Sea News)
Between December 2022 to December 2023, 47.5 million tons of oil were exported from the Black Sea, of which 41.09%—19.6 million tons—were transported by European shipowners. Even with the restrictions, ships from non-European countries and even from Russia continued to transport oil.
Since March 2023, non-European shipowners have significantly increased their transportation volumes and become major players in the transportation industry. Notably, Greek companies topped the list, transporting 36.53% of oil, followed by Russian companies with 24.77%. After the announcement of the 11th E.U. sanctions package on June 21, 2023, five Greek companies were recognized as sponsors of war. This led to a decrease in the transportation of Greek tankers, but later the figures rose again.
The tendency for Greek companies to be replaced by other shipowners, especially from "flag of convenience" countries and Russia, was noticeable. In 2023, Russian companies once again surged to the forefront, transporting 42% of oil, underscoring the need for vigilant oversight to prevent sanctions circumvention and mitigate geopolitical tensions. Despite the embargo, the trade in oil persists, and the politics and economics of the Black Sea are becoming increasingly pivotal to the region.
Effective Sanctions Require Closing Loopholes
The situation involving the transportation of Russian oil through the Black Sea under the E.U. and G7 embargo carries potentially serious consequences for energy security and geopolitical stability. Primarily, it presents a risk of violating sanctions and undermining general political coordination between countries. Actions taken by shipowners to circumvent the sanctions may instigate new economic and political conflicts, escalating tensions in the region and jeopardizing economic stability.
Given this situation, the European Union and the G7 countries must urgently implement measures to ensure compliance with sanctions and fortify the international legal order. Developing a collective strategy that considers all facets of energy security and geopolitical challenges is crucial. Efforts should be directed toward finding effective mechanisms to identify and prevent the circumvention of sanctions, thereby averting violations of international norms and rules.
Moreover, nations should actively advocate for the diversification of energy sources and the establishment of sustainable transportation routes that do not hinge on potential shifts in the geopolitical landscape. This approach will enhance the resilience of the energy sector and diminish susceptibility to external influences. A clean energy buildout will also help meet climate reduction targets and save up to $178 trillion in climate catastrophe costs by 2070 according to The Wall Street Journal.
Given the critical importance of energy security and geopolitical stability, immediate action and collaborative efforts are imperative to ensure a peaceful and stable global energy landscape.
India's Oil Import Shift Could Reduce Russia's War Chest
Context: Systemic Indian Investments in the Russian Oil Sector
The historical background of relations between India and Russia in the context of oil trade is deeply rooted and has undergone significant changes over time.
Indian companies have invested heavily in Russia's oil industry, particularly in projects like the Vankor and Taas oil fields. These investments have strengthened economic ties between the two countries and helped India expand its access to energy resources.
In April 2023, Indian Foreign Minister Dr S. Jaishankar called the bilateral agreement with Russia one of the "most stable in the world." A month before his speech, the Kremlin's foreign policy document of March 2023 stated that Russia would "continue to build a particularly privileged strategic partnership" with India.
Following Russia's full-scale invasion of Ukraine and the imposition of Western sanctions against Russia, relations between India and Russia in the oil trade have undergone significant changes.
The initiation of Indian investment in Russia's energy sector traces back to when Videsh Oil and Gas Corporation (OVL) injected $1.6 billion for a 20% stake in the Sakhalin-1 oil project. Before the onset of the conflict in Ukraine, this project boasted a daily oil production of 220,000 barrels, with ONGC receiving a substantial share of 44,000 barrels.
Thus, India has been investing in Russian projects for decades to diversify and increase its sources of supply.
Time for High Purchases and Discounts
In the wake of the brutal invasion of Ukraine, India seized the opportunity to secure Russian oil at significantly reduced prices, establishing Russia as one of its primary oil suppliers. Global sanctions against Russia have led to a substantial decline in demand for Russian oil and gas, prompting the United States, the European Union, Australia, and their allies to impose price limits on Russian oil, capping it at $60 per barrel.
India, heavily dependent on oil and gas imports with 87% of its oil and 65% of its gas sourced externally, strategically exploited the low prices by substantially raising its imports of Russian oil. This surge catapulted Russian oil's share in India's total oil imports from 1% to a substantial 40%. Even amid ongoing investigations into 120,000 Russian war crimes in Ukraine, India's enthusiasm for Russian fuels remained resilient. In the fiscal years 2022-2023, India imported a staggering $38.8 billion worth of Russian oil, translating to substantial savings of $3.6 billion on energy imports for the Indian government in the preceding fiscal year. Private oil refineries reaped even greater benefits, amounting to savings of up to $7.6 billion.
In the fiscal years 2022-2023, India exported 3.8 million tons of refined Russian oil to the E.U. countries for $20 billion. This amounted to about 10% of India's total exports of petroleum products.
Thus, India has taken advantage of Western sanctions against Russia by increasing its imports of Russian oil and saving significant money on energy imports.
Conversely, India seeks to pursue an oil import policy that ensures a steady supply, diversifying its oil basket to reduce the impact of possible supply shocks.
Reasons for Changes in Supplies to India
Several key factors can explain the decline in India's oil imports from Russia.
Western sanctions: After Russia invaded Ukraine, Western countries imposed sanctions on Russian oil. However, rising prices for Russian oil on the one hand and stricter sanctions enforcement on the other hand have prompted a preference for alternative supplies.
Critical increase in the share of Russian oil in Indian imports: Due to these discounts, the share of Russian oil in India's total imports increased to 19.1% in the financial year 2022-2023, up from 2% in the previous year.
Doubtful discounts: Despite the declared discounts, the actual discounts on Russian oil remained unclear due to the lack of transparency in pricing for Russian oil cargoes. The actual cost of oil included freight and insurance costs, which were raised due to Western sanctions.
Diversification: India plans to pursue a policy of oil imports that provides equal supplies from the Persian Gulf countries and Russia. It is currently working on further diversifying its oil supplies. This is done to reduce the impact of possible supply shocks.
As a result, the decline in oil imports from Russia may be partly due to changes in global economic conditions, India's diversification of suppliers, and the complex effects of Western sanctions.
Following Russia's full-scale invasion of Ukraine and the imposition of Western sanctions against Russia, relations between India and Russia in the oil trade have undergone significant changes.
Since April 2023, Russian banks have been withholding Indian dividends totaling $400 million, which cannot be transferred due to Western sanctions. Additionally, four Russian oil and gas projects, including Sakhalin-1 and three oil fields of Taas, have suspended their operations. This was because these projects were previously managed by Western energy companies that left Russia after the conflict in Ukraine.
However, the pressure of sanctions, difficulties with settlements, and pressure on logistics chains are reducing this cooperation. Such actions can reduce Russia's income from fossil fuel exports and limit its ability to stock up Russian President Vladimir Putin's war chest. Therefore, this pressure must be further increased to reduce Russia's revenues and, consequently, its ability to wage it's brutal, aggressive war against Ukraine.
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