Last August, we were the first to show how Russia circumvented the European embargo on raw materials: it sold liquefied natural gas (LNG) to China, which then resold it to Europe at a substantial markup. And although we also have frequently reported that Russia was using a similar circumvention of oil sanctions, this time using India instead of China, few were prepared to confirm: after all, it would seem very short-sighted for European consumers to pay India extra , while Russia suffers no negative consequences from Europe’s derisory “sanctions”.
This is no longer the case: Friday, Bloomberg reported that despite Europe’s fire and anger over an embargo (which has eased markedly in recent months), ” Russian oil still fuels Europe with help from India ».
As we reported at the time, last December the EU banned almost all crude oil imports by sea from Russia. Two months later, it extended this ban to refined fuels. However, these rules have not stopped countries like India from grabbing cheap Russian crude, turning it into fuels such as diesel, and shipping it back to Europe at a hefty markup: as the chart shows below, the price differential between Brent and Urals, a by-product of Russian sanctions, is around $25 per barrel, or almost a third of the price of a barrel of crude. Margins on Russian products are even higher when it comes to refined products such as gasoline or diesel.
In fact, India has become so good at reselling Russian oil to the same Europeans who refuse to buy it directly from Moscow for a much lower price, that the Asian country is on track to become Europe’s largest supplier of refined fuels this month, while buying record amounts of Russian crude, according to data from analytics firm Kpler.
In other words, Europe continues to buy Russian oil, which allows Putin’s military machine to be well funded, but due to the virtue signal exercise of buying Russian oil by mediated, the transaction ends up costing the Europeans billions of dollars more than if they had simply bought the oil directly.
« Russian oil is coming back to Europe despite all the sanctions and India increasing its fuel exports to the West is a good example of this said Viktor Katona, senior crude oil analyst at the company. ” India absorbing so many Russian barrels, it’s inevitable. »
As noted Bloomberg, who are ” the evolution is a double-edged sword for the EU. For one, the bloc needs other sources of diesel now that it has cut direct flows from Russia, which was previously its main supplier. On the other hand, the demand for Moscow barrels is increasing, which leads to additional transportation costs. In other words, Europe is not achieving any of the objectives it set itself in the context of the embargo (preventing Russian oil from entering the market, preventing Putin from using oil to finance the war in Ukraine), while being hit by much higher energy prices. »
It also means increased competition for European refiners who don’t have access to cheap Russian crude, and it comes amid heightened market scrutiny over where the region’s diesel imports come from.
Josu Jon Imaz, CEO of Repsol SA, said on Thursday that Russian diesel was entering Europe illegally and called on authorities to stop the activity. He wasn’t talking about trade via India, but diesel flows from Russia…which of course is the same thing.
Hilariously, a preliminary investigation by Spanish authorities failed to prove Russian diesel was entering the country, a government official said on Friday, adding that an investigation was ongoing. Of course, no one in Europe wants to admit that he is indirectly funding Putin. So expect many more such “finds” as every other country tries to find out if they are importing Russian oil only to find that everyone else is using it except them.
Meanwhile, European imports of refined fuel from India are expected to top 360 barrels a day, just ahead of oil-exporting titan Saudi Arabia, according to Kpler data.
The icing on the cake: Arrivals of Russian crude oil to India are expected to exceed 2 million barrels per day in April, accounting for almost 44% of the country’s total oil imports, according to Kpler data. India then quickly re-exports the oil or processes it first into diesel and gasoline, before selling it to European customers.
More than half of Russia’s maritime oil shipments were destined for the European Union and Group of Seven countries before the bloc began cutting back on purchases in response to the country’s invasion of Ukraine in the beginning of 2022.
Last but not least, the question of the usefulness of the continuation of “sanctions” against Russia arises, as Robin Brooks of the IIR explains, in the following thread on Twitter, which once again shows that Western sanctions against Russia have been a catastrophic failure… perhaps as planned all along.
Evaluation of our sanctions policy
1. Only two questions are important. First, have our sanctions significantly reduced Russia’s ability to wage war? Second, do our sanctions have a deterrent effect on countries that may go to war in the future? Unfortunately, the answer to both of these questions is: “No! ” No ! »
2. The fundamental problem is the enthusiasm for financial sanctions. These can be effective when applied to countries with current account deficits – Turkey in 2018 is an example – but they do not work with countries with current account surpluses. This is an essential point that cannot be overemphasized.
3. Russia shows the failure of our financial sanctions. We sanctioned some banks, including the central bank (in red), but not all. This means that all cash from Russia’s current account surplus was funneled through unsanctioned Russian banks (in blue). Putin still received all his cash…
4. So our financial sanctions did not prevent Putin from getting all his money in exchange for energy exports. All that money was just funneled through different banks than before. As a result, financial conditions in Russia have eased back to pre-war levels, which is a big plus for the Russian war economy.
5. This could have been avoided, but ALL Russian banks should have been sanctioned. It’s the same as a trade embargo, since Putin is no longer paid and stops exporting. This shows what needs to be done to harm c/a surplus countries: a trade embargo! No financial penalties…
6. The first lesson to be learned from Russia is that our craze for financial sanctions must end. They don’t work on countries with excess production capacity, unless we sanction all the banks, in which case we would simply impose a trade embargo. We need to put in place trade embargoes rather than financial sanctions…
7. If we had imposed an energy embargo on Russia, it would have been expensive for the West, but Russia would have suffered a financial crisis, which would have made the war more difficult for Putin to fight. An embargo would also have scared off other potentially hostile countries with current account surpluses.
8. It’s not too late. First, the West must stop focusing on financial sanctions. Second, we need to start talking about the tough trade-offs that are needed to deal with countries with current account surpluses. We have to stop giving them money, which means we have to stop buying their products…
9. A footnote on the G7 oil price cap. This ceiling is recognition that Russia’s current account surplus needs to be reduced. But, thanks to the Greek shipping oligarchs, the cap was set at $60 and was not binding. A mistake that can be fixed now by lowering the ceiling…
source: ZeroHedge via Digital Dawn