The growing policy divide between the United States and the European Union on Russian oil exports to India is likely to play out in a small reduction in crude flows in October, analysts and trade sources with knowledge of loading plans said.
The U.S., EU and G7 allies sanctioned Russian imports after Moscow’s invasion of Ukraine, and prohibited insurers and maritime service providers from facilitating exports to third countries unless they were below a price cap.
The purpose of the cap was to limit the price that importers could pay for Russian oil while keeping shipments flowing, thereby reducing Russian oil revenue and preventing a supply crunch that would push up oil prices.
The scheme effectively encouraged India and China to buy the oil at discounted prices.
U.S. President Donald Trump has, however, changed policy on Russian exports to India. He has demanded India stop buying Russian oil completely and then doubled tariffs to as much as 50% on Indian exports to the United States when New Delhi refused to halt the oil imports.
Trump is using the tariffs on India, the top importer of Russian seaborne oil, to force Moscow to make peace in Ukraine.
Trump’s demand for a halt in the trade is at odds with the price cap scheme, which aims to keep Russian oil exports moving to India, China and other buyers such as Turkey.
“Sanctions coordination between the U.S. and the other G7 nations does seem to have largely broken down under the Trump administration,” said consultancy Energy Aspects’ head of geopolitics Richard Bronze.
In a sign that may change, European Commission chief Ursula von der Leyen said on Wednesday the EU is considering a faster phase-out of Russian fossil fuels as part of new sanctions against Moscow. The EU’s sanctions envoy and an EU team are in Washington to discuss possible further sanctions.
Indian importers of Russian oil are pushing for bigger discounts from Russian sellers as the potential risks from participating in the trade rise, four traders involved in sales told Reuters.
Indian buyers said discounts need to widen to around $10 per barrel to benchmark Brent prices to meet price cap levels as banks have tightened scrutiny due to discord between EU and U.S. policies on Russian oil. That is much wider than discounts of $2-3 per barrel seen in September, the traders said.
Some Russian sellers have responded by saying Indian buyers were asking for too deep a discount and said they would send some October spot cargoes to China instead, which would lead to a slight decline in volumes for India, two trading sources said.
OCTOBER VOLUMES TO DROP
Russian crude arriving in India in October will average about 1.4 million barrels per day, a source with knowledge of loading plans said. That would be down from 1.5 million bpd in August and 1.6 million bpd in September, according to sources.
The final volumes for October will become clearer when talks between buyers and sellers are completed in the next two weeks.
Whatever the outcome, crude for October will be sold above the price cap in most cases to India as even a discount of $10 per barrel will not bring Russian oil prices below the new EU and UK price cap of $47.60 a barrel.
The EU lowered the price cap for Russian oil from October, allowing Western insurers and shippers to provide services only if crude is sold below $47.60 a barrel, down from the previous cap of $60 per barrel. The U.S. did not support the cut in the price cap. Brent traded at $67 per barrel on Wednesday. The European Commission would try to align all G7 members with the new lower price cap in the future, the Commission’s spokesperson told Reuters. The price cap was still relevant as Western shippers were still transporting Russian oil, he said. The lower price cap would make it harder for Western shippers to continue facilitating the trade.
“A growing split on oil sanctions policy will further increase confusion for market participants and potentially weaken levels of compliance,” said Tom Boughton from risk consultancy S-RM.
Russia is also using tankers from the so-called shadow fleet – a fleet of tankers with Russian connections, which is covered by Russian ship insurance. Due to the lack of Western service providers in these trades, the shadow fleet operates outside of the price cap scheme.
Russian firms and traders have managed to sell most oil above the price cap since 2022 either thanks to using their own fleet or by forging documents related to sales, according to traders, Western intelligence sources and market analysts. Poor sanction enforcement has encouraged traders to push boundaries or ignore sanctions altogether as they do not fear penalties, Energy Aspects’ Bronze said.
The price cap is likely to remain a hindrance to Russian traders of oil, but not a major threat, said Benjamin Godwin, partner at risk consultancy PRISM Strategic Intelligence.
“Both the U.S. and EU could make serious moves to choke Russia’s oil and gas industry, but they would be extremely disruptive to global economic activity,” said Godwin.
