The Russian government has never been richer… thanks to a strategic American partner.

(CNN) — Russia is entering the third year of the war in Ukraine with a record amount of cash in government coffers, boosted by record $37 billion sales of crude oil to India last year, according to a new analysis. Which concludes that part of the crude oil was refined by India and then exported to the United States as petroleum products worth more than US$1 billion.

This flow of payments, which is ultimately benefiting Moscow, has brought India’s purchases of Russian crude to pre-war quantities, according to an analysis by the Center for Energy and Clean Air Research (CREA) shared exclusively with CNN. comes from increasing it by more than 13 times. According to the analysis, this means that New Delhi, a strategic partner of the United States, has now reduced its purchases of crude oil previously made by Western buyers due to sanctions over the Russian invasion of Ukraine.

While the sale of Russian crude oil to India is not subject to sanctions and is completely legal, investigation of shipping routes by experts suggests that this huge volume of shipments involves so-called “shadow fleets” or mysterious fleets of crude oil tankers. Can happen. , was created specifically by Moscow to try to hide who it trades with and how, and maximize the Kremlin’s profits.

This is how Russia manages to sell oil and avoid sanctions

CNN looked at what is likely part of that complex trade from the Greek port of Gitsion (also known as Gitio) earlier this month. Two oil tankers (one larger, the other smaller) come together to perform a ship-to-ship transfer, which involves moving crude between ships, sometimes with the aim of disguising its origin and final destination.

Both tankers have colorful stories. Both had left Russia weeks ago. One is owned by an India-based company accused of engaging in sanctions violations, and the other was previously owned by an individual who is subject to separate U.S. sanctions, according to shipping monitoring firm Pole Star Global. Were installed.

David Tannenbaum of Poll Star Global said, “Transfers are (sometimes) made legally, but they are also used as an illegal tactic to avoid sanctions.” “Multiple layers are being added to the shipping game, trying to confuse authorities about where this oil is coming from and who is buying it at the end of the day.”

Analysts say dozens of such transfers occur each week in Greece’s Laconia Gulf, a convenient crossing point en route to the Suez Canal and Asian markets.

In early February, the US Treasury Department announced sanctions against ships and companies suspected of helping move Russian crude in violation of US sanctions, in an effort to stop the operations of Russia’s Shadow Fleet, a hidden fleet. Implemented a new package.

The United States led a coalition of countries in late 2022 that agreed to a “price ceiling” promising not to buy Russian crude above $60 a barrel. Those countries banned their shipping companies and insurance companies – major players in global shipping – from facilitating trading in Russian crude above that price.

“The price cap was the real trigger for the creation of the shadow fleet,” said Victor Katona, head of crude oil analysis at trading research firm Kpler. “The longer the supply chain, the more difficult it will be to sort out ship-to-ship transfers… the more difficult it will be to determine the true price of Russian barrels.”

Some oil trade between Russia and India is open and direct. Maritime artificial intelligence company Windward analyzed global maritime activities for CNN and detected 588 direct oil tanker voyages from Russia to India last year.

But some traffic between the two countries is more complicated, as CNN observed on the Greek coast. Pole Star Global investigated the same route and found that last year more than 200 vessels from Russia were transferring to another vessel in the Laconian Gulf, headed for India.

Pole Star Global’s Tannenbaum said the company “suspects” that the main reason for these transfers was to avoid sanctions, as “almost all of these vessels” had ties to the US or EU and would be subject to price caps. “This bay is closed. It’s out of the way. And then they can carry out this activity pseudo-anonymously.

Windward CEO Ami Daniels made a similar assessment: “This is part of a systematic and systemic effort by Russia to make everything more complicated.” He described the incentives of Russia and oil traders to avoid sanctions as “huge”, adding: “To move over 60 million barrels in the middle of the ocean and export them to India really needs a reason because it It’s not much easier to navigate directly than it would be.”

The shadow fleet has allowed Russia to create a parallel maritime structure that can resist the changing tactics and approaches of Western sanctions, with hundreds of tankers under opaque or hidden ownership, using complex routes. Windward estimates the fleet grew to 1,800 vessels last year.

A Profitable Business in the Middle of War

The net effect of India’s crude oil purchases is to weaken the impact of oil sanctions on Russian President Vladimir Putin. Russia’s federal revenues are set to rise to a record $320 billion in 2023 and are expected to rise further. According to some analysts, about a third of the money was spent on the war in Ukraine last year, and an even larger share will be spent financing the conflict in 2024.

The funds at the Kremlin’s disposal put Moscow in a better position to sustain a protracted war than Kiev, which is struggling to maintain much-needed Western cash flows.

Russian federal revenues and spending are set to reach an all-time high in 2023, according to an analysis of Russian Finance Ministry public data by RAND economist Howard Schatz. However, he said, Moscow has not yet balanced the books, which is an indication of the total costs of the war, but also the impact of sanctions on oil revenues.

“Despite revenue increases, the federal budget deficit reached its third-highest level ever…the largest only in 2022 and 2020,” he said. “Taxes on domestic production and imports are high and effective, which means they are taxing their own population to pay for this war,” he said.

India’s role… and American purchases

India has justified its purchases from Russia as a way to keep global prices low because it is not competing with Western countries for Middle East oil. India’s Petroleum and Natural Gas Minister Hardeep Singh Puri told CNBC last week: “If we start buying more oil from the Middle East, the oil price will not be at $75 or $76. It will be $150.”

India’s complex role in global oil trade is also reflected in the fate of the petroleum products into which Russian crude is converted. Some crude oil is refined into petroleum products at refineries on India’s west coast and then exported to the United States and other countries that have signed sanctions against Russian oil. Products refined outside Russia are not subject to sanctions, an omission that critics call the “refinery loophole”.

CREA analysis estimates that the United States was the largest buyer of Indian refined products made from Russian crude last year, worth $1.3 billion between the beginning of December 2022, when the price cap was imposed, and the end of 2023 . The organization’s estimates are based on publicly available marine and energy data.

The value of these oil product exports increases significantly once you include US allies who are enforcing sanctions against Russia. CREA estimates that these countries will import petroleum products made from Russian crude worth US$9.1 billion in 2023, an increase of 44% from the previous year.

Moscow has also found a means to enrich itself through this refining and exporting process. One of the Indian refineries and ports accepting Russian crude is in Vadinar and is run by a company called Nayara Energy, which is 49.1% owned by Russian state oil giant Rosneft. CREA estimates that the United States imported $63 million worth of refined petroleum products to Vadinar in 2023, and about half of the crude used at the plant was Russian. All of these are completely legal.

But the organization reports that Vadinar exports “generate significant tax revenues for the Kremlin in the form of taxes on exported Russian crude” and the profits made by Rosneft from refining and reselling to Moscow’s Western adversaries. Even through.

Still, analysts say that given the significant sums involved in the trade of single tanker cargo, the profits that could be made from even the slightest evasion of sanctions against Russia are huge. “You’re really talking about something incredibly fascinating,” Daniel said on Windward. “The temptation to do this… is huge for traders. They can make $10 to $40 million in four or five months. “I’m not sure there’s any other opportunity to do this in the world.”