Decoding India's Fuel Export Sector

India's petroleum product exports brought in a staggering $58 billion in FY23, accounting for 13% of the country's total exports.

• The Indian government also reaps substantial benefits from windfall taxes on fuel exports. The prohibition of oil product imports from Russia by the European Union (EU) has led European consumers to turn to countries like India, China, and Turkey for their fuel needs.
• Year on year, India's clean product exports to Europe have seen an increase of 11 percentage points.

G-7's Proposed Sanctions and India's Stance

• Josep Borrell, the EU's high representative for foreign affairs, has proposed sanctioning countries involved in the resale of products derived from Russian crude oil to Europe.
• Borrell views this trade as a way to bypass sanctions. However, India's Foreign Minister S Jaishankar has clarified that there are no sanctions on such resale, underscoring the transformation of Russian crude in a third country.

India's Adherence to International Sanctions

• Indian officials maintain that the country strictly adheres to international sanctions, as evidenced by its cessation of oil trade with Iran and Venezuela in response to US sanctions.
• In contrast, China continues to import oil from Iran and Venezuela, irrespective of these sanctions.

Rise in India's Clean Product Exports

• India's clean product exports to Europe have doubled year on year, reaching 25 million barrels between February and mid-May.
• Diesel/gasoil made up over 40% of these exports, followed by gasoline and jet fuel. However, shipments saw a slight dip in April following a peak in March 2023.

EU's Concerns and Rising Russian Crude Imports

• The EU is wary of sanctioning trade involving fuels derived from Russian oil reaching its member states.
• However, India's recent surge in crude imports from Russia has raised eyebrows. Russian oil now comprises over 40% of India's crude imports, a significant rise from the 1-2% prior to the Ukraine invasion.

Potential Repercussions and Ongoing Discussions

• EU executive vice president Margrethe Vestager has emphasized the legality of sanctions and indicated that further discussions with India are on the horizon.
• If the trade is deemed illegal, the EU may contemplate banning it outright. Reliance Industries is the dominant player in fuel exports, with Nayara Energy trailing as a distant second.

India's Refining Capacity and Shifting Trade Flows

• India's refining capacity, which is constrained by growing domestic demand, influences its export potential.
• When the European market opened up in February 2023, Indian refiners adjusted their supply chains, cutting supplies to certain countries while ramping up exports to Europe.
• Shipments to South Korea and Australia decreased, while those to the Netherlands, Spain, and Belgium saw a considerable uptick.

Conclusion

• The G-7's focus on sanctioning countries involved in the resale of Russian crude-derived products could have potential implications for India's fuel export industry, primarily dominated by Reliance Industries.
• While discussions between the EU and India continue, the impact on India's exports may be minimal.
• Competition with discounted Russian fuels in traditional markets presents challenges for Reliance and Nayara.
• India needs to explore markets that prohibit discounted Russian fuels but are open to accepting products made from cheap Russian crude.