The European Union’s decision to slap sanctions on Vadinar refinery will prompt the Rosneft-backed Indian unit to turn its attention to exporting products to Southeast Asia, Latin America and Africa, analysts and industry sources said, adding that enforcing crude-origin tracing would be a technically and logistically complex process.

Sources told Platts, part of S&P Global Commodity Insights, that the exact impact would depend on how the sanctions are implemented, which would be a challenging task. The six-month transitional period on oil product exports provides Nayara Energy, which owns the Vadinar refinery, time to develop an alternative export strategy, while also looking at the possibility of Rosneft selling its stake.

“The recent EU sanctions against Rosneft, which owns about 49% of Nayara refinery, are set to create significant challenges for Nayara as it is likely to have a pronounced impact on its jet fuel and kerosene sales, which were primarily being exported to Europe,” said Abhishek Ranjan, South Asia oil research lead at Commodity Insights.

Nayara Energy’s 400,000 b/d Vadinar refinery has received 403,000 b/d of crude so far this year, out of which 72% has been Russian-origin crude grade, according to S&P Global Commodities at Sea(opens in a new tab).

On July 18, the EU banned imports of refined products made from Russian crude oil, revised its oil price cap mechanism, and blacklisted over 100 shadow fleet tankers. The council lowered the crude oil price cap from $60/b to $47.60/b, effective Sept. 3. The next cap is set at 15% below the average market price for Urals and is subject to review every six months.

Platts assessments show Russia’s flagship crude export grade, Urals, has been mostly traded below $60/b since late February and was last assessed at $58.48/b on July 18.

For oil product imports, the EU introduced a six-month transitional period, after which EU operators will be prohibited from purchasing, importing or transferring petroleum products obtained in a third country from Russian crude oil.

“There is a six-month transition period. A lot could change by then,” said a senior Indian refining source.

More questions than answers

Following the EU’s announcement, the Indian government said it does not subscribe to any unilateral sanctions measures. “We are a responsible actor and remain fully committed to our legal obligations. We would stress that there should be no double standards, especially when it comes to energy trade,” India’s foreign ministry said in a statement on July 18.

DLN Sastri, director for oil refining and marketing at the Federation of Indian Petroleum Industry, said blocking refined products from India would force the EU to import from distant markets, creating a trade-off between punishing Russian-linked flows and making consumers pay higher fuel prices.

“Enforcing crude-origin tracing in refined products is technically and logistically complex because refineries blend multiple crudes from various sources. There is no established foolproof tracing system or any global blockchain for refined products. This makes sanctions hard to implement effectively,” Sastri said.

While EU sanctions may push Nayara Energy to look toward non-EU markets — such as Africa, Latin America and Southeast Asia — the private refiner can also consider supplying the displaced volumes to domestic markets. Sastri added that the measure, aimed at cutting Russia’s revenue streams, could distort trade flows and increase shipping distances, raising volatility in product pricing.

Rajat Kapoor, managing director for oil and gas at Synergy Consulting, said the EU’s sanctions mark a shift from targeting Russian-origin goods and financial institutions to now penalizing third-country infrastructure linked to Russian firms.

“It remains to be seen how Vadinar would continue to access Russian barrels under the new sanctions. How effective this recalibrated approach will be depends on enforcement coordination and global oil market conditions,” Kapoor said.

Analysts added that the renewed price cap on Russian oil would further strain Nayara, which has been processing huge volumes of Russian-origin crude. Although Nayara sources crude from Iraq and Saudi Arabia, quickly replacing lost Russian supplies may prove challenging, though a global crude surplus might offer some relief.

Domestic focus, stake sale

While Nayara has been mainly selling jet fuel to Europe recently, it has been redirecting its focus toward increasing diesel exports to Southeast Asia, Southern Africa, and the Middle East.

Nayara has also expanded its retail footprint, increasing the number of outlets from 6,570 to 6,760 over the course of a year, supporting higher domestic sales. In 2023-24 (April-March), 82% of its diesel and 65% of its gasoline production were sold domestically, according to Commodity Insights data.

In 2017, Nayara, which was then called Essar Oil, closed a $12.9 billion takeover deal by Rosneft and its consortium partners. As part of the deal, the consortium took over the 20 million mt/year Vadinar refinery, which has a complexity index of 11.8. The refinery is capable of processing some of the toughest crudes and producing Euro-5 and Euro-6 grade oil products.

While Rosneft has remained tight-lipped, industry officials, government sources, and analysts have been saying that Rosneft was considering selling its stake in Nayara as the Russian oil entity struggled to repatriate earnings.

According to Commodity Insights, the ongoing challenges and latest EU sanctions are likely to further complicate Rosneft’s efforts to divest its stake in Nayara.

“The sale process could get slowed down, as the difference between buyer and seller valuations will just go higher, given the risks involved. A lot of the value of the refinery is in the retail outlets, but the risk of domestic retail prices getting potentially implicitly subsidized in case of high oil prices also limits the interest of international players in this acquisition,” said Tushar Bansal, senior director at consulting agency Alvarez and Marsal.
Source: Platts