India: refining under pressure

The U.S. Treasury’s latest OFAC sanctions on Lukoil and Rosneft have triggered a wave of recalibration — but for India, the real pressure began earlier. The EU’s 18th sanctions package (18 July 2025) already ensnared Rosneft’s 49.13% stake in Nayara Energy and its 405,000 b/d Vadinar refinery, even though the U.S. measures technically stop short of it.

With Reliance and the state-run refiners pledging to phase out Russian crude, it’s hard to see how Vadinar maintains its status quo without courting geopolitical friction. The numbers only sharpen the contrast: Jamnagar I (660 kb/d) and Jamnagar II (580 kb/d) are already repositioning feedstock away from Russian barrels.

Petrobras appears to be preparing for the fallout, attaching West Coast India options to all its 2 million-barrel liftings — a clear hedge against volatility at Vadinar:

All four fixtures point to mid-December arrivals. Meanwhile, Coral (2Rivers) continues assisting Nayara with distillate exports, though delivery off Oman remains inconsistent — a reflection of tightening logistics rather than lack of demand.

Forced consolidation is on the cards. The 2017 Essar-to-Rosneft/United Capital Partners sale (USD 12.9bn) could become a blueprint for a second restructuring — this time driven by politics, not performance. The EU’s 21 January 2026 ban on products derived from Russian crude now looks redundant, as Reliance’s withdrawal has already undermined the commercial bridge between Russian supply and European ULSD.

China: securing the middle of the barrel

Beijing’s response has been pragmatic. Heavier sour grades are being prioritised — not because they’re cheap, but because they deliver more middle distillate yield. With tanks full of feedstock, Chinese refiners are maximising recovery through Hydrodesulfurisation Units (HDU) rather than pushing lighter fractions.

Even GS Caltex in Korea has adjusted, taking delivery of Castilla (Ecopetrol) cargoes rarely seen in its slate — another middle-distillate play.

Despite Washington’s pressure, China won’t be pivoting to WTI — there’s too much inconsistency in U.S. Gulf grades and too little alignment with domestic refining configurations. American refiners remain gasoline-biased, running VGO through FCC units rather than HDUs, chasing light ends China doesn’t need.

The recent sanctioning of China Oil Hong Kong sets up a familiar pattern — and Beijing already has the playbook, courtesy of CNOOC, to insulate its core import streams.

Russia: reverting to the resistance economy

The net effect is a narrowing of Russia’s options. The country now faces a structure closer to Iran or Venezuela — dependent on China, buffered by trans-shipment, and buried in re-BL bureaucracy.

Expect increased STS operations in Malaysia and Indonesia, with aggregation into VLCCs and inevitable demurrage escalation. Teapots in Shandong are already waving in Tuapse LSFO, while VGO flows demand even more creativity.

Since VGO is banned in China, it must now be sold as Fuel Oil, requiring tank re-documentation. That explains the Vanino-to-Korea redoc route, before re-export to Sinopec Yangpu. For longer-haul barrels from Taman or Vysotsk, Fujairah is the logical redoc hub — competing with SRFO into China, priced accordingly off MOPAG 180, not MOPS 180.

The economics are clear: if Persian SRFO (55% VGO) sells at –$10 off MOPAG 180, then Russian 100% VGO ex-Fujairah, marketed as fuel, should fetch around –$7 — a discount engineered for acceptability.

The Bigger Picture

This round of sanctions reshapes the heart of the barrel. India faces refinery realignment and possible forced restructuring. China doubles down on yield optimisation and middle-distillate self-sufficiency. Russia reverts to logistical gymnastics to keep barrels moving.

Each outcome is different, but the thread is the same: sanctions are no longer about stopping trade — they’re about shifting where and how that trade takes place.