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MUMBAI: Oil refineries near the western Indian port city of Sikka, where conglomerate Reliance Industries and other Indian companies operate, have come under the spotlight recently for becoming a hub for the “laundering” of Russian oil.

US officials believe that Russian crude is being refined in India and then exported to the US and Europe, circumventing sanctions that have been imposed on Russian president Vladimir Putin’s government for its invasion of Ukraine.

US State Department senior adviser for energy security Amos Hochstein said in a Senate hearing on June 9 that he advised Indian officials to refrain from buying Russian oil.

“I would ask two things. One, don’t go too far. Don’t look like you’re taking advantage of the pain that is being felt in European households and the US. Second, make sure you negotiate well, because if you don’t buy (the oil), nobody else (will),” he said.

While it is difficult to identify the source of crude once it has been processed, the numbers tell their own story.

According to financial information provider Refinitiv, nearly 24 million barrels of Russian crude oil arrived in India in May, more than eight times the amount a year earlier. In June, the number remained high at more than 20 million barrels.

Imports of Russian oil have surged since Moscow launched its invasion of Ukraine in February. Sales in India are estimated at close to US$1.9 billion in May alone, making it an important source of income for Putin’s government.

Around 26 million barrels of Russian oil are believed to have arrived in Sikka alone between April and June, 5.3 times more than the level a year earlier. Russian oil comprises 20% of the total delivered to Sikka via sea.

India processes crude oil into exports such as gasoline, diesel fuel and jet fuel. Oil products exported from the port in Sikka totalled around 75 million barrels in the April-June period, with 20% going to Europe or the US.

“Oil is not separated and stored in different tanks by source,” said an employee at a major Japanese oil wholesaler. “It’s almost impossible to precisely locate where imported oil is from.”

Reliance Industries declined to comment on the allegations that Russian crude oil might be getting mixed in with raw materials for petroleum products exported to the West.

Indian external affairs minister Subrahmanyam Jaishankar was more dismissive, saying, “Not even heard about anybody in India thinking along the lines of (buying Russian oil and selling it to somebody else)” at the Globsec 2022 Forum in Bratislava on June 3.

Urals crude is US$30 to US$40 cheaper per barrel than benchmark Brent crude oil, which is particularly attractive to India, given its concerns over its trade deficit.

China, too, has increased imports of Russian crude by a significant 55% in May from a year ago, according to Reuters.

It appears that China is buying undervalued Russian crude oil and gas for its own consumption and to add to what it has been buying from Europe and other countries.

While Russian crude exports are expected to decrease over the long term, purchases by China and India will support its prices.

Furthermore, the shift toward decarbonisation has made it hard to invest in oil refineries, which in the short term is putting a squeeze on supplies and prices.

Fatih Birol, executive director of the International Energy Agency, told German weekly Der Spiegel that a bottleneck may emerge for products including diesel oil, gasoline and paraffin in Europe.