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Eu Sanction on Indian Refinery

Eu Sanction on Indian Refinery

General Studies Paper II: Government Policies & Interventions, Effect of Policies & Politics of Countries on India’s Interests

Why in News? 

Recently the European Union imposed sanctions on India’s Vadinar Refinery owned by Nayara Energy and partly by Rosneft. The move aims to curb Russian oil revenues amid the Ukraine conflict.

Key Highlights of Eu Sanction on Indian Refinery
  • On 18 July 2025, the European Union imposed sanctions on Nayara Energy’s Vadinar refinery to restrict Russia’s energy income. 
  • This is the first instance where the EU directly targeted a non-European refinery with Russian ties
  • The European Union has rolled out its 18th round of sanctions as part of its continuing response to the Russia-Ukrain Conflict, which began in early 2022.
  • The sanctions on Nayara Energy include asset freezes, travel bans, and a ban on providing resources or services to the refinery. 
  • Under this the EU has placed tighter controls on petroleum products made using Russian crude and revised the crude oil price ceiling downward to $47.6 per barrel from the earlier cap of $60.
  • The EU’s latest package also targets Russia’s shadow fleet, which includes vessels that help bypass restrictions on oil shipments. 
  • Over 105 new vessels were sanctioned, increasing the total to 444 ships that are banned from EU ports. 
  • A transaction ban now applies to Nord Stream 1 and 2 pipelines, and sanctions have been extended to 45 Russian banks to restrict military-industrial complexes from accessing international markets.

Reasons Behind the EU’s Action Against the Indian Refinery

    • Ownership Link: The European Union’s decision to sanction the Vadinar refinery operated by Nayara Energy is deeply connected to its ownership structure. The refinery is nearly 50% owned by Rosneft, a Russian state-controlled oil company. As of 2025, Rosneft holds a 49.13% stake in Nayara Energy. This significant ownership allows the Russian government to indirectly benefit from the refinery’s commercial activities.
  • Third-Party Nation: Third-party countries like India are unintentionally becoming routes for bypassing sanctions. Since the EU imposed restrictions on Russian oil imports starting in 2022, several Russian firms have sought alternate markets. However, countries outside the sanctions regime have continued to import discounted Russian crude, refine it, and export the refined products globally, EU is one of them. The Vadinar refinery is believed to have processed large volumes of Russian crude in the last two years.
  • Political Message: By sanctioning a major refinery outside its borders, the EU delivers a political message—that neutrality or indirect cooperation with Russia will not go unnoticed. It reflects the EU’s belief that global pressure must be consistent and widespread to make a meaningful impact on Russia’s economic and military sustainability.

Nayara Energy and Its Economic Role in India’s Energy Sector

  • About: Nayara Energy, formerly known as Essar Oil Limited, operates one of India’s second largest private refineries. 
  • The facility is located in Vadinar, a coastal town in the Devbhumi Dwarka district of Gujarat
  • The refinery began operations in the early 2000s and gradually expanded its capacity and infrastructure. 
  • Over the years, the refinery transformed into a strategic energy hub and plays a vital role in India’s fuel distribution network
  • Ownership: By 2025, Nayara Energy operates under a co-ownership framework, involving both domestic and international stakeholders.
  • The most significant shareholder is Rosneft, a Russian state-controlled oil company, which holds a 49.13% stake in the enterprise. 
  • This investment was finalized in 2017, when Rosneft and a group of global investors acquired Essar Oil. 
  • The remaining ownership lies with Kesani Enterprises Co. Ltd., a consortium backed by international institutional investors.
  • Operational Capacity: The Vadinar facility stands among India’s major refineries, capable of handling close to 405,000 barrels of crude oil daily.
  • The plant covers nearly 50 square kilometers, with integrated facilities for crude refining, power generation, and storage. 
  • As of 2025, Nayara operates over 6,300 fuel retail outlets across the country, offering petrol, diesel, and other refined fuels. 
  • Economic Role: Nayara Energy plays a key role in India’s energy supply chain. Its contributions help maintain a balance between public and private sector fuel supplies
  • The refinery is positioned close to the Gulf of Kutch, which ensures easy import of crude and export of refined products via maritime routes. 
  • The facility is strategically located near Gujarat’s industrial corridor to ensure consistent demand for petroleum products. 
  • The company also supports local employment and logistics, offering thousands of direct and indirect jobs in the region. 
    • The refinery’s international ownership and operations give it access to global crude markets, allowing it to source oil from various countries, including Russia, the Middle East, and Africa
    • It plays a significant role in India’s energy sector as a major downstream player, contributing approximately 8% of India’s refining output.

India’s Oil Trade: Imports and Exports in Recent Years

  • India has seen steady growth in its oil intake over recent years. The country imported approximately 4.2 million barrels per day (bpd) in 2021, rising to 4.7 mmbd during the 2023–24 fiscal year.
  • In 2023, total crude and condensate imports hit a record of 4.5 mmbd, making India the second-largest global net oil importer.
  • India’s reliance on Russian oil grew sharply after Western sanctions began in 2022. In the 2023–24 fiscal year, Russia supplied approximately 35 % of India’s crude, roughly 1.64 mmbd, up from 22 % the year before.
  • In 2024–25, Russian oil maintained a 36 % share, supplying 1.76 mmbd.
  • India exports refined petroleum to the EU in 2023, the EU imported nearly $11.6 billion worth of Indian refined fuels.
  • Total EU goods imports from India in 2024 reached €71.3 billion, of which roughly €7 billion (10 %) represented mineral fuels and related products.
  • Key exports include diesel (43 percent), gasoline (28 percent), and jet/kerosene (3 percent).
  • In May 2025, crude oil imports surged to a record 23.32 MMT, marking a 9.8 % month-on-month increase.
  • The IEA forecasts that India’s crude intake could rise further, potentially reaching 5.8 million bpd by 2030, driven by increased refining usage.

Impact on India’s Oil Imports and Energy Security

  • Disruption in Supply Chains: India delivered a sharp increase in Russian oil purchases post‑2022, with Russian shipments making up around 42 % of India’s imports in early 2025. Any disruption in current flows could create temporary gaps. Refineries such as Bharat Petroleum (BPCL) have begun shifting to Middle East grades to fill such shortfalls. 
  • Import Costs: By lowering the Russian oil price cap to $47.60 per barrel, the EU aims to squeeze Moscow’s income. A reduced price cap may lower import bills if secure cargoes are available. But if sanctions cause supply constraints, competition for non‑Russian oil might inflate global prices.
  • Fuel Export Revenues: India has become a major petroleum products exporter, supplying diesel and petrol to markets like the EU, Africa, and South Asia. The new sanctions prevent any fuel refined from Russian-origin crude from being sold into EU nations, regardless of the refining country. This measure jeopardizes margins for major exporters like Reliance and Nayara, possibly shrinking revenue streams and forcing a pivot to different markets or feedstocks.

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