 |
|
The escalating tension between the United States and India over the latter's oil refining practices has unveiled a complex web of geopolitical and economic considerations. What initially began as a tacit encouragement for India to absorb discounted Russian crude in the aftermath of the Ukraine war has morphed into open criticism, with the US Treasury Secretary accusing Indian refiners, particularly Reliance Industries and Nayara Energy, of engaging in 'arbitrage' by purchasing cheap Russian oil, refining it into valuable fuels, and reselling those products to Europe and other regions that have imposed sanctions on Moscow. This shift in stance raises several questions about the long-term strategic goals of the United States, the economic impact on India, and the broader implications for the global energy market. The accusation of profiteering, with claims that some of the richest families in India have made $16 billion in excess profits, adds fuel to the fire and puts considerable pressure on the Indian government and its private refining sector. The figures cited by Bloomberg and Kpler, indicating that Reliance and Nayara exported $60 billion worth of petroleum products in FY 2024-25, with $15 billion going to the European Union in the first half of the year alone, underscore the significant scale of these operations and the potential impact of any restrictions imposed by the US. Reliance's long-term deal with Russia's Rosneft to import up to 500,000 barrels per day, worth around $12-13 billion annually, further cements the company's reliance on Russian crude, while Nayara Energy's increased dependence, with 72% of its crude purchases coming from Russia by 2025, highlights the extent to which Indian refiners have become entangled in the geopolitical standoff. The US pushback also comes at a time when President Trump has announced an additional 25% tariff on India’s exports to America, adding another layer of complexity to the trade relationship between the two countries. Trump's threat of 'secondary tariffs' on buyers of Russian crude, with India seen as the primary target, raises the specter of further economic sanctions and could potentially disrupt India's energy supply chain and its refining industry. While the US differentiates its treatment of China's Russian oil imports by pointing to China's pre-existing reliance on Russian crude, this argument may not resonate with India, which can argue that it was initially encouraged by Washington to purchase Russian oil as part of a broader strategy to manage global oil prices and maintain supply stability.
The situation is further complicated by conflicting narratives regarding the US's initial stance on India's purchase of Russian oil. Some energy experts, like Bob McNally, argue that India played a crucial role in the price cap sanction mechanism designed by the US and its European allies to ensure Russian oil still flowed while trying to crimp the revenue Moscow earned. This raises the question of whether the US is now backtracking on its earlier position or whether the goalposts have shifted in response to evolving geopolitical realities. The Commerce Ministry data highlights the significant contribution of refined fuel exports to India's trade balance, with petroleum product exports worth $97.47 billion in FY 2022-23, $84.16 billion in FY 2023-24, and $63.35 billion in FY 2024-25. The Netherlands, the UAE, and Singapore are among the top destinations for Indian fuels, alongside buyers in Europe and West Africa. Any restrictions on India's refining industry could have a significant impact on these trade flows and could potentially disrupt the global energy market. The US actions could be interpreted as a sign of growing unease about the flow of Russian oil revenues, but they also carry the risk of unsettling relations with New Delhi, a key strategic partner in the Indo-Pacific region. The consequences of this dispute could be far-reaching, potentially impacting the global balance of power, energy security, and trade relations. A deeper dive into the motivations and justifications behind the US accusations is warranted. Is the US primarily concerned about the circumvention of sanctions, or are there broader strategic considerations at play, such as promoting its own domestic energy industry or exerting pressure on India to align more closely with its foreign policy objectives? Similarly, understanding India's perspective is crucial. Is India simply pursuing its own economic interests by taking advantage of discounted Russian oil, or does it see its actions as contributing to global energy stability and mitigating the impact of the Ukraine war on oil prices? The answers to these questions will shed light on the true nature of the dispute and the potential for resolution.
Furthermore, it is essential to analyze the specific mechanisms by which Indian refiners are alleged to be 'profiteering.' Are they exploiting loopholes in the sanctions regime, or are they simply engaging in legitimate trade practices within the boundaries of international law? The level of transparency in their operations and the extent to which they are adhering to ethical business standards are also important considerations. The role of the European Union in this equation should not be overlooked. As a major recipient of refined fuels from India, the EU has a vested interest in ensuring a stable and affordable energy supply. However, it also has a commitment to upholding sanctions against Russia. Balancing these competing interests will require careful diplomacy and a nuanced understanding of the complexities of the global energy market. The future of the US-India relationship hinges on the ability of both sides to find a mutually acceptable solution to this dispute. This may involve greater transparency from Indian refiners, stricter enforcement of sanctions by the US, or a negotiated agreement that allows India to continue purchasing Russian oil while ensuring that it does not contribute to the financing of the war in Ukraine. The alternative is a further escalation of tensions, which could have detrimental consequences for both countries and for the global economy. The situation highlights the inherent challenges of imposing sanctions in a globalized world, where supply chains are complex and interconnected. It also underscores the need for international cooperation and a coordinated approach to addressing the economic and political consequences of the Ukraine war. Ultimately, a long-term solution will require a comprehensive strategy that addresses the root causes of the conflict and promotes a more stable and sustainable global energy system. This includes diversifying energy sources, investing in renewable energy technologies, and promoting energy efficiency. Without such a strategy, the world will continue to be vulnerable to geopolitical shocks and energy crises.
Examining the specific companies involved, Reliance Industries and Nayara Energy, is crucial to understanding the dynamics at play. Reliance, led by Mukesh Ambani, is a major player in the Indian economy and a global energy conglomerate. Its decision to enter into a long-term deal with Rosneft reflects its strategic focus on securing a reliable and affordable source of crude oil. Nayara Energy, nearly half-owned by Rosneft, has a more direct connection to the Russian government. Its increased reliance on Russian crude raises questions about the extent to which it is influenced by Russian geopolitical interests. Understanding the corporate governance structures and decision-making processes of these companies is essential for assessing their role in the alleged profiteering scheme. The data on fuel exports from Nayara and Reliance reveals the significant scale of their operations. Nayara's export of nearly 3 million metric tonnes of fuel in the first half of 2025, representing 30% of its total output, demonstrates its importance as a regional fuel supplier. Reliance's export of over 21 million tonnes in the same period underscores its dominant position in the Indian refining industry. The buyers of these fuels, including major trading houses like Vitol, Aramco Trading, Shell, bp, ExxonMobil, Glencore, and Trafigura, are all key players in the global energy market. Their involvement highlights the interconnectedness of the global energy supply chain and the challenges of isolating specific actors or regions from the impact of sanctions. Furthermore, the analysis of India's Russian crude imports reveals a significant shift in its energy procurement strategy. Before the war in Ukraine, India purchased only 68,000 barrels per day from Russia. This figure surged to a peak of 2.15 million barrels per day in May 2023, before settling at 1.78 million barrels per day in July 2025. Russia now supplies about 36% of India's oil needs, compared to a negligible 0.2% share before the conflict. This dramatic increase highlights India's growing reliance on Russian crude and the potential vulnerability of its energy security to geopolitical events. The fact that Indian state-run refiners such as IOC, BPCL, and HPCL have also been importing Russian crude, albeit primarily for domestic consumption, suggests that the issue extends beyond the private refining sector. The US pushback, therefore, raises broader questions about India's overall energy policy and its relationship with Russia.
The distinction drawn by the US between China and India's Russian oil imports is also worth examining. Bessent's suggestion that Beijing's imports were treated differently because it had already been a large buyer of Russian oil before the invasion may be seen as a weak justification by India, which can argue that it was encouraged by Washington to keep buying Russian oil as part of a broader strategy to manage global oil prices. The perception of double standards could further complicate relations between the US and India and undermine the credibility of US foreign policy. The threat of 'secondary tariffs' on buyers of Russian crude is a powerful tool that could potentially disrupt India's energy supply chain and its refining industry. However, it also carries the risk of unintended consequences, such as increasing global oil prices and harming consumers in other countries. The US must carefully weigh the potential benefits and costs of such measures before implementing them. The Commerce Ministry data on petroleum product exports provides valuable insights into the economic significance of the refining industry for India. The fluctuations in export value over the past few years reflect the volatility of the global energy market and the impact of geopolitical events. The fact that the Netherlands, the UAE, and Singapore are among the top destinations for Indian fuels highlights the importance of these countries as key trading partners for India. Any disruption to these trade flows could have a significant impact on India's economy. The questions now being raised about whether private refiners could face more direct restrictions reflect the growing uncertainty surrounding the future of the US-India relationship. Analysts say Washington's moves reflect growing unease about the flow of Russian oil revenues, but they also risk unsettling relations with New Delhi, a key strategic partner in the Indo-Pacific region. The resolution of this dispute will require careful diplomacy and a willingness to compromise on both sides. The long-term implications for the global energy market and the balance of power will depend on the outcome.
Source: Pumping profits or picking a fight? US goes after Indian refiners