It's a unique kind of irony which only global energy markets can bring about and India is in the middle of it right now. Relying heavily on discounted Russian crude oil, New Delhi's crude oil procurement policy for the past three years was based on that oil. That bet proved to be very profitable not only for India's refiners, but for the household economy as well. Now, it appears that that same trade has come full circle: refined gasoline produced from that Russian crude, in an Indian refinery, is allegedly becoming available to the very same Russia, where it was originally sold.

On Thursday, two sources with firsthand knowledge of the developments told Reuters that fuel from the Vadinar-based refinery Nayara Energy, which is 49 percent owned by Rosneft, Russia's state major, has been traded on to Russia via independent trading houses. Nayara did not respond to requests for comment. So far, the company hasn't commented publicly, as it did not do with the other refinery, where it has been operating under the shadow of Western sanctions for more than a year.

This is against the background of a fuel crisis inside Russia, which has been growing for months and, according to most independent sources, has worsened significantly since spring. The current campaign by Ukraine, which has been ongoing since 2026, has been targeting Russian refining facilities, unlike previous attacks on storage depots, marking a shift in strategy to directly target the plants themselves, especially the fluid catalytic cracking units (FCCUs) that convert crude oil into usable fuel. Some analysts estimate that the strikes have halted as much as 33 percent of domestic Russian refining capacity, bringing throughput to a level not seen for decades. Ten of the nation's biggest refineries are said to have been damaged, with repeated strikes against the Moscow refinery in Kapotnya and a new attack on the Kstovo refinery, one of the largest in the country, which burst into flames this week.

The effects on the ground are the ones that are manifested in queues, not in official statistics, in Russia. On the ground, more than two-thirds of the country's regions are experiencing rationing or some type of supply constraint. From the Far East to Siberia, filling stations have restricted sales, transport operators in cities as far away as Irkutsk have upped the fare to match fuel prices and pump prices have reached a new high despite assurances from the Kremlin that the situation is under control. President Vladimir Putin admitted in late June that there were shortages and that they were a problem also linked to the drone campaign, but that it was manageable. Days later Russia's parliament hurried to pass changes to the tax laws specifically tailored to help subsidize seaborne fuel imports, with the subsidy formula reportedly being tied to the cost of seaborne fuel from India a telling sign of where Moscow is looking for its fuel.

Apparently, that's the vacuum into which Indian-origin gasoline has been flowing. On Wednesday, Reuters first reported that Russia had started receiving seaborne supplies of gasoline from India, without naming the refinery from which the shipments came, citing at least 60,000 metric tons sent in two tankers, each holding 30,000 to 40,000 tons. On Thursday, the source finally narrowed down to Nayara. An invoice from a tanker, seen by Reuters, indicated that the ship Agni, registered in Cameroon, was offloading gasoline at Vadinar and calling at Fujairah on June 20, although tracking data from LSEG later showed the vessel well beyond its stated destination, in the Suez Canal and making its way north, a telltale shipping ruse in the three years since sanctions went into effect. A third industry source told Reuters that Russia now aims to import up to 400,000 metric tons of gasoline a month from several foreign sources, and Belarus is already sending more than double its gasoline supplies south via rail in the first half of June compared with a month ago. Some idea of the size of the gap that outside suppliers are being asked to cover can be gained by the knowledge that domestic demand in Russia, during the busiest summer months, is approximately 110,000 tons daily.

Politically, it's about as bad as it gets for New Delhi. When pressed, the oil minister Hardeep Singh Puri (Hardeep Singh Rawat) gave a carefully-worded answer on Thursday, saying that Indian companies were not selling fuel to Russia, but it was "possible" that India-origin fuel had been bought by Russia from independent traders. That distinction between a refiner selling directly, or a refiner's product, sold several hands later by a trading intermediary, has been the government's stock answer whenever questions are asked about the fate of Indian refined products. In fairness, it's a distinction with real legal impact, too. Shipping data and invoices would be the only way to trace a gasoline cargo's last buyer, after it passes from the hands of the Indian port.

The EU's decision to impose sanctions on Nayara in the first place in July last year was on the basis of its connection to Rosneft as part of the bloc's 18th sanctions package against Russia. It cut Nayara's access to EU distillates markets, shook the nerves of international shipowners and insurers and led Saudi Aramco, the state marketing arm in Iraq to withdraw from the refinery aid altogether. Once a diverse mix, Vadinar's crude intake briefly dropped before bouncing back on Russian barrels alone: Vadinar was now processing some 345,000 barrels a day of Russian Urals crude, almost exclusively by June this year. India's government has been objecting to the EU sanctions as being “extraterritorial” and “inconsistent with international norms” and both Nayara and Rosneft have indicated a willingness to challenge the sanctions in court, though neither side has given any indication of a timeline. Meanwhile, Nayara has followed the same path that sanctioned entities typically do: relying more heavily on its network of around 6,500 domestic retail outlets, settling some crude purchases in rupees via Indian banks, and increasing exports to customers in the Middle East, Africa and now, apparently, even Russia, using trading companies that lurk legally between Nayara and the customer.

Step back and the statistics of India's Russian oil dependence make this story relevant far beyond just one refinery. In June, India's total crude imports reached a record, at around 5 million bpd, of which Russian barrels totalled about 2.6 million bpd more than half of its crude imports and the highest ever for the bilateral trade, LSEG and Kpler ship-tracking data shows. Indian Oil Corp alone imported more than 900,000 bpd of Russian crude, followed closely by the Jamnagar complex of Reliance Industries at more than 500,000. Much of that rebound is driven by necessity, as the Indian refiners scramble to make up for the reduction in Gulf volumes that occurred when the Strait of Hormuz was shut this year, and Russian oil with discounts of $4-6 per barrel to Brent was the most easily available stopgap. About 30-35% of total crude processed in the Indian refineries is now sourced from Russia, a proportion that would have been unimaginable prior to 2022 and that puts India's energy security in a bind with Moscow's fate.

The gasoline-to-Russia narrative is more than a footnote because what it indicates is a redrawing of the sanctions regime, driven by market forces, to the extent there is a shortage of gasoline at least when it becomes acute. Overall, the EU's Nayara sanctions are likely to have a limited effect on global product flows, as the refiner will have enough domestic demand and other export markets to absorb the EU embargo without significant market disruption, according to analysts at Rystad Energy. But the picture that is starting to emerge Russian crude refined in India, sold through murky trading channels, with a portion of it making the return trip to fuel-starved Russia exemplifies exactly the sort of circularity that Brussels and Washington have been unable to stem by sanctions. That no one is violating any particular rule to trade refined products via intermediaries is not the issue; that the existing package of sanctions on crude and on Nayara specifically is not even designed to prevent such trade once refined products depart Indian waters is.

It is now a more difficult balancing act for India on both sides. Washington and Brussels are already willing to go to the dogs over Indian crude ties, and if Indian refining capacity is seen as indirectly supporting Russia's wartime fuel supply chain, it will not be lost on Western capitals already uneasy about New Delhi's oil arithmetic. Meanwhile, the price cuts on Russian crude are too economically relevant for Indian refiners to turn a blind eye to, especially as global benchmark prices are still high after the Hormuz disruption. For now, New Delhi has replied with another procedural detail: the traders, not the refiners, sold the oil. But as more and more tanker data and shipping records emerge, that distinction will be increasingly challenged by the very administrations India has attempted to distance itself from for the past year.