The Hindu: Published on 12 September 2025.
Why in News?
A sharp policy divide between the U.S. and the EU has emerged over Russian oil sales to India.
Indian buyers are demanding wider discounts (around $10/barrel) due to increased risks and bank scrutiny.
October crude flows to India are expected to drop slightly as Russian sellers divert some cargoes to China.
Background:
After Russia’s invasion of Ukraine (Feb 2022), the U.S., EU, and G7 allies imposed sanctions on Russian oil.
The price cap mechanism was introduced to:
Limit Moscow’s revenues from oil exports.
Prevent global oil shortages by keeping Russian oil flowing at discounted prices.
India and China became top buyers of discounted Russian oil.
Key Issues:
Policy Divide:
EU: Recently cut the oil price cap to $47.60/barrel (from $60). Wants stricter sanctions.
U.S. (Trump administration): Opposes the lower cap and instead pressures India to halt Russian imports entirely, using tariffs as leverage.
Impact on India:
India, the largest importer of Russian seaborne oil, faces:
Tighter banking scrutiny.
Risk of sanctions violations.
Need for bigger discounts from Russia to justify the risks.
Discounts demanded: $10/barrel vs earlier $2-3/barrel in September.
Russia’s Response:
Some sellers reject deeper discounts.
Part of October shipments diverted to China, reducing Indian intake slightly.
Market Confusion:
Disunity between U.S. & EU weakens enforcement.
Traders exploit loopholes using the “shadow fleet” and Russian insurance.
Many deals still occur above the price cap.
Current Situation (October Outlook):
India’s Russian crude imports:
- August: 1.5 million bpd.
- September: 1.6 million bpd.
- October (expected): ~1.4 million bpd.
Even with discounts, most October sales to India will exceed the new EU price cap, making compliance difficult.
Geopolitical Impact:
India:
Faces pressure from U.S. (tariffs) and EU (price cap).
Balancing act: securing cheap energy vs managing Western ties.
Russia:
Continues to sell oil, often above price cap.
Uses shadow fleet and alternative insurance to bypass sanctions.
Diverts cargoes between India, China, and Turkey to maintain demand.
U.S.–EU Relations:
Breakdown in sanctions coordination weakens credibility of G7 unity.
EU pushing for stricter alignment, U.S. diverging under Trump.
Economic & Market Impact:
Brent crude: Trading around $67/barrel, above EU’s new cap.
Lower EU cap could disrupt Western shippers still carrying Russian oil.
Traders expect continued circumvention due to weak enforcement.
India’s bargaining power increases — demanding deeper discounts.
Long-Term Outlook:
Sanctions effectiveness is limited without U.S.-EU coordination.
India and China remain crucial for Russian oil exports.
If tariffs and stricter sanctions continue, India may diversify imports further.
Russia likely to deepen reliance on shadow fleet and alternative financial systems.
Conclusion:
The EU-U.S. divide on Russian oil policy has created confusion in global energy markets. While India gains leverage to push for deeper discounts, the discord undermines sanctions and allows Russia to keep oil revenues flowing. The coming months will test whether EU efforts to tighten enforcement can align the G7, or whether Trump’s unilateral stance will further weaken the sanctions regime.
