-By A Special Correspondent
(Lanka-e-News -07.Aug.2025, 11.10 PM) The United States government is reportedly preparing to increase scrutiny on a web of oil exports from Indian state-run and private oil firms—most notably the Indian Oil Corporation (IOC)—amid growing concerns that Russian crude, processed and rebranded, is being exported in violation of international sanctions.
According to diplomatic sources and energy trade analysts, Washington is quietly assessing oil trade routes and refining chains originating in India and reaching 19 countries, including Sri Lanka, Maldives, Nepal, Bangladesh, Myanmar, Mauritius, and several African and Central Asian states. The review, sources claim, is part of an expanded sanctions compliance drive targeting circumvention strategies employed by entities that refine discounted Russian crude and re-export it as “Indian origin” petroleum products.
The move could have significant ramifications for Sri Lanka and its precarious energy security. The island nation, reliant on imports for 100% of its fuel needs, has increasingly turned to IOC's local subsidiary—Lanka IOC—as a vital supplier, particularly during and after the 2022 economic collapse. However, if the U.S. concludes that IOC exports contain unverified or Russian-origin oil, Colombo may face a stark choice: audit its imports or risk secondary sanctions or trade implications.
Since the 2022 invasion of Ukraine, Indian refineries—particularly those owned by IOC, Bharat Petroleum Corporation Limited (BPCL), and Reliance Industries—have emerged as some of the largest buyers of heavily discounted Russian crude. These purchases, while not directly sanctioned by Washington due to India’s non-alignment, have drawn sharp criticism from Western capitals, particularly when the refined products find their way back to countries allied with the U.S. or under its security umbrella.
"Russian crude is being laundered through Indian refineries, turned into diesel or aviation fuel, and sold to third countries," said a former senior U.S. Treasury official familiar with sanctions enforcement. "This undermines the purpose of the G7 oil price cap and the EU’s embargo."
According to a recent report by the Centre for Research on Energy and Clean Air (CREA), more than 35% of IOC’s refining feedstock in the past 18 months originated from Russia. The refined products have been exported to at least 19 countries, including several U.S. allies and vulnerable economies—many of whom may not even be aware of the oil’s provenance.
Among the largest importers of Indian refined fuels during this period were Sri Lanka, Mauritius, Nepal, Bangladesh, Seychelles, Kenya, and Kazakhstan. The report also suggests that oil from India is increasingly being routed through free trade zones in the UAE and Singapore before reaching its final destination, a structure that further clouds its origins.
Officials in Washington are now actively assessing whether to expand the reach of secondary sanctions—those applied not to Russia directly, but to third-party entities facilitating its trade—to cover refined oil products that originate from Russian crude, regardless of their transformation in Indian facilities.
One potential target could be IOC's foreign subsidiaries, including Lanka IOC, which operates hundreds of fuel stations and a significant portion of Sri Lanka’s oil storage and logistics infrastructure. While Lanka IOC claims it procures petroleum independently, critics argue that it effectively acts as a distribution arm for its parent company's refining operations.
“Even if the oil is refined in India, the crude origin still matters under certain sanctions regimes,” said a senior sanctions compliance attorney based in Washington. “If the U.S. determines that these exports undermine the intent of the price cap or help Moscow sustain its war economy, they could move to restrict access to U.S. markets or financial systems for involved parties.”
Already, U.S. officials are said to have raised the matter informally with Indian diplomats and several importing countries. A draft advisory—according to sources seen by regional energy traders—may soon be circulated urging buyers of Indian oil to verify the source of the refined product, especially in nations heavily reliant on IOC’s distribution channels.
For Sri Lanka, the scrutiny could not come at a worse time. The cash-strapped island has barely emerged from a catastrophic fuel crisis, which in 2022 brought transport, electricity, and agriculture to a standstill. Since then, Lanka IOC has played a critical role in stabilising supply, sometimes offering more reliable delivery than the state-run Ceylon Petroleum Corporation (CPC).
But with over 40% of its refined fuel reportedly sourced from IOC or its affiliates, Colombo may soon be asked by Washington to demonstrate that the imports are not indirectly supporting Moscow.
“This is not about punishing Sri Lanka,” a U.S. official told The Times, “but about ensuring that global compliance with sanctions is meaningful. We expect transparency from all participants, especially those receiving U.S. aid or IMF support.”
Sri Lanka’s Ministry of Energy has so far declined to comment officially, but one senior official confirmed that preliminary discussions were taking place with both IOC and CPC to assess the traceability of their imports. “We are being told to be careful, to verify, and possibly to diversify,” the official said, on condition of anonymity.
The U.S. Embassy in Colombo, while not confirming any active enforcement steps, stated in a brief comment that “the United States encourages all countries to support efforts to isolate the Russian war economy and ensure that trade channels are not abused.”
Analysts believe that the most likely outcome will be the introduction of a stricter certification or declaration regime for countries importing refined petroleum from India. Similar to existing “attestation requirements” in the maritime and financial sectors, buyers may be required to obtain documentation proving that their cargo does not originate—directly or indirectly—from Russian crude.
“This will complicate procurement, especially for smaller countries with limited leverage,” said Kiran Desai, an energy trade analyst at the Observer Research Foundation in New Delhi. “But it will also force more transparency into supply chains that have remained murky for far too long.”
For its part, IOC maintains that all its exports comply with international law and that it does not knowingly violate sanctions. “Indian refiners operate within national and international norms,” a company spokesperson said. “We are committed to ensuring full compliance and transparency.”
Whether that will be enough to satisfy Washington remains to be seen. With sanctions enforcement emerging as a critical tool of Western foreign policy, even neutral actors like Sri Lanka and Mauritius may find themselves dragged into a geopolitical energy battle not of their making.
-By A Special Correspondent
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by (2025-08-07 19:25:33)
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