Laundromat Countries

Context: A report titled “Laundromat: How the price cap coalition whitewashes Russian oil in third countries” published by the Helsinki-based Center for Research on Energy and Clean Air (CREA) has found that oil from Russia is getting backdoor entry into Europe via Laundromat countries.

Laundromat Countries Background

• Recently, the European Union and the US had banned crude oil imports from Russia which was further extended to ban on Russian refined petroleum products including diesel and fuel oil.
• The G7 countries, the European Union and Australia had also put a $60 per barrel price cap on Russian crude oil imports.
  • The G-7 countries is a group of developed nations: U.S., the U.K., Canada, France, Germany, Italy and Japan.
• These Western sanctions were part of the international efforts that aimed to reduce Moscow’s ability to finance its war in Ukraine.
• Laundromats’ is a term used to describe a type of financial fraud where large amounts of money, often obtained through illegal means, are moved through a complex web of transactions and accounts to disguise their origin and make them appear legitimate.

Findings in CREA Report

• The Laundromat Countries: CREA identifies China, India, the United Arab Emirates, Turkey and Singapore as “laundromat countries”.
• Export of Refined Products by Laundromat Countries: The report explained that Russia is forced to offer discounted oil to ensure it is able to find buyers.  Consequently, the Laundromat countries increased imports of Russian oil after the Ukraine invasion. These countries then refined larger volumes of imported Russian crude and exported refined products to sanction imposing countries.
  • The report mentioned that there are increased exports of refined products to the “price-cap countries” that sanctioned Russian oil, including the European Union, Australia, Japan, the United Kingdom, Canada and the United States.
  • The EU, G7 and Australia continue to import Russian fossil fuels as refined oil products from third countries and allow transportation on their vessels and insurance.
  • The EU has been the largest importer of these refined products, followed by Australia.
  • This is currently a legal way of exporting oil products to countries that are imposing sanctions on Russia as the product origin has been changed.

• India Leads Laundromat Countries: India is among the top five countries, including China, that is purchasing cheap Russian crude oil and converting it into refined petroleum products, which are exported in Europe and G7 countries.
  • India imported about a third or 35% of its oil imports from Russia in March 2023, buying about 1.6 million barrels per day from Russia over 2022.
  • In April 2023, India remained the highest global consumer of seaborne Russian crude for a fifth month.
  • Sikka and Vadinar ports in Gujarat are among the top ports that are importing Russian crude oil and exporting refined petroleum products to Europe.
    • Sikka port is the biggest oil product export port to the price-cap coalition countries, and the largest importing port in the world of seaborne crude oil from Russia.
    •  Vadinar port ships oil products from Nayara energies, which is partly owned (49.13%) by Rosneft, a Russian integrated energy company.

Impact of the Laundromat

• International Impact:
  • No Supply Shocks: The Russian economy is highly dependent on its energy sector, and Europe is a major importer of Russian energy.  Export of refined products by Laundromat countries has prevented worst ever oil supply shocks that could have happened in the European market with consequent price hikes.
  • Undermined Economic Sanctions: The price cap coalition countries have increased imports of refined oil products from countries that have become the largest importers of Russian crude. This is a major loophole that can undermine the impact of the sanctions on Russia.
  • Increased Revenue to Russia: All of the five laundromat countries increased Russian crude oil imports over the same time period that their exports of refined oil products sold to price cap coalition countries rose, which provides evidence that laundromat countries are providing funds to Russia through higher imports for Russian crude.
• Impact on India:
  •  Enhanced Refining Capacity: India’s crude oil refining capacity is growing rapidly to meet burgeoning demand for petroleum products. Today India is the global refining hub with refining capacity of 248.9 MMTPA and is the fourth largest in the world after the United States, China and Russia.
  • Enhancing India’s Exports: India emerged as the leading exporter of refined oil products at 3.7 million tonnes to Price Cap Coalition countries in 2022,  as per the report. This is an increase of 0.3 million tonnes from 2021­­.
  • • Facilitate Trade: India’s exports of diesel tripled to about 1,60,000 barrels per day in March 2023, compared with the period before the Russian war in Ukraine, making diesel one of the largest components of India-EU trade at present.
• Facilitate India’s Energy Diplomacy: India has emerged as the focal point in the world of oil and gas as the third largest energy consumer in the world. India is constantly working on its energy diplomacy to make investments in other countries and create a mutually beneficial relationship.

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