How China and India have helped Russia circumvent sanctions by buying cheap oil

Russia has found new customers in Asia for its powerful oil and gas industry. And thanks to them, it has been able to mitigate the effects of the strong economic sanctions imposed on Russian products by Western Europe and the United States.

After invading Ukraine, Russia overtook Saudi Arabia to become the main supplier of oil to China.

Russia reportedly offered China discounts on its oil and gas prices, which opened up a huge market for Russia that had previously been untapped and capable of offsetting, at least in part, the losses caused by the blockade on sales after the economic sanctions.

Russia also turned to India: before the invasion of Ukraine, only 1% of its oil exports were destined for the country. In May 2022, they corresponded to 18%.

China, Russia and India make up, along with Brazil and South Africa, the BRICS geopolitical bloc. And, despite decades of disagreements, the recent rapprochement between Russia, China and India not only brings financial gains for all, but also reinforces their international positions in the dispute with the antagonistic bloc, led by the United States.

On June 19, in a virtual speech at the opening of the BRICS business forum, Russian President Vladimir Putin made it clear that sending his products to other BRICS members, especially India and China, is Russia’s strategy to circumvent sanctions.

While selling oil products to Chinese and Indians, Putin mentioned the possibility of increasing the presence of Chinese cars in the country and the opening of stores of an Indian supermarket chain.

“Russian oil deliveries to China and India are increasing. And agricultural cooperation has developed dynamically,” said Putin, who is primarily responsible for fertilizer shipments to the BRICS countries.

According to Putin, along with the other members of the bloc, the Russians have made progress to reduce their financial dependence on the dollar and euro in international transactions.

Apart from Russia, three of the four BRICS members abstained from supporting the UN’s condemnation of the proposed invasion of Ukraine.

The exception was Brazil, which supported the measure suggested by the Americans. The Brazilian government, however, made it clear that it was against the sanctions imposed by the United States and Western Europe on the Russian economy.

The gains are evident for Putin. There has been a significant drop in revenues from oil and gas exports, but profits from the energy sector are still enough to finance, among other things, the war in Ukraine.

oil on sale

According to data from China’s General Administration of Customs, Russian oil imports — including supplies from the East Siberian-Pacific Ocean pipeline — reached 8.42 million tonnes last month.

This represented a 55% increase from 2021, reaching record levels in the month of May.

Chinese state-owned companies such as Sinopec and Zhenhua Oil have bolstered their demand for oil in recent months.

Companies received deep discounts from Russia as buyers in Europe and the United States began to avoid Russian oil and gas after the invasion.

That left Saudi Arabia in second place among the countries that supply oil to China, with 7.82 million tonnes.

But Russia is not the only country under sanctions from which China is buying oil: The country acquired 260,000 tonnes of oil from Iran last month, the third such purchase since December.

loopholes in the laws

According to a report by the Center for Research on Energy and Clean Air (Crea), Russia has seen a continuous decline in its sales of oil products since the sanctions began.

The report warns, however, that Russia found loopholes in the laws to continue exporting.

One would be to export crude oil to countries like India, where that product is refined and then shipped to European countries.

“The report notes that more and more Russian oil is being exported to India for refining and that much of this refined oil makes its way to European markets,” said Theo Legget, a BBC business reporter.

“And as Russia seeks new markets for its products, Russian oil is moving from pipelines to ships, most of which are owned by European companies. For pressure on Russia to be effective, issues like these must be addressed.”

Europe’s dilemma

The European Union (group of 27 European countries) remains the main buyer of gas and oil from Russia.

An estimated US$59 billion of the US$97 billion (or R$307 billion of the R$505 billion) that Russia received in energy exports during the first 100 days of the war in Ukraine came from the bloc.

At least for now, it has proved impossible for the European Union to reach an agreement to completely ban the purchase of oil and gas from Russia. But some plans have advanced.

The bloc plans to impose a ban on Russian oil imports arriving by sea before the end of the year, which would reduce the amount imported by more than 60%.

In addition, in March, the European community committed to reducing Russian gas imports by at least two-thirds over a one-year period.

For its part, the United States has enacted a total ban on purchases of oil, gas and coal from Russia, and the United Kingdom is expected to do the same before the end of 2022.

What can happen?

“With fuel prices soaring,” says Dharshini David, the BBC’s global business correspondent, “it’s not just drivers who queue up when they see a discount.”

David explains that India and China have been able to take advantage of the current situation in Russia, but warns that, with the entry into force of European sanctions and the transition to other suppliers, the good moment for Russian exports may be short-lived.

“Russia’s oil revenues have already started to fall, and this will intensify as other nations look to alternative sources of energy.”

This text was originally published here.