Introduction

India’s strategy of balancing affordable crude imports with strong ties to western partners has come under severe strain. Two major developments have disrupted this delicate equilibrium: (i) sweeping US tariffs on Indian exports; and (ii) targeted EU sanctions aimed at Russian-origin oil products and Indian refining companies. Together, these measures have tightened the screws on compliance, finance, shipping, and market access across India’s refining ecosystem.

Law behind Sanctions and its Jurisdictional Scope

US Sanctions

The primary regulator in United States of America (U.S.) responsible for administering sanctions is the Department of the Treasury’s Office of Foreign Assets Control (OFAC). OFAC has designated as Specially Designated Nationals (SDNs) many Russian persons including companies, vessels, groups, financial institutions etc. U.S. persons are prohibited from engaging in nearly all transactions or dealings with SDNs absent OFAC authorization. If any U.S. persons possess or come into possession of property or interests in property of SDNs, they must treat such property as frozen property. Being placed on a sanctions list makes it illegal for U.S. persons to continue doing business with that entity. Contracts to which SDNs are parties are considered as property in which an SDN has an interest and therefore are also treated as frozen. Usually, contracts contain a dedicated sanctions clause that explicitly allows a party to terminate the agreement if the counterparty becomes subject to sanctions.

Non-U.S. persons that are acting without U.S. person support, approval or facilitation (including without the involvement of U.S. financial institutions or transactions denominated in U.S. Dollars) are generally beyond the reach of the U.S. sanctions and, as such, are not required to comply with them. However, under certain sanctions authorities, the U.S. government has authority to impose secondary sanctions – i.e., imposing a range of denial of U.S. export and related trade benefits – in connection with non-U.S. persons, including by designating as SDNs persons that have engaged in restricted dealings and/or that are providing certain assistance or support to sanctioned persons.

EU Sanctions

Regulations passed by the EU council (EU Regulations) are the main legal instruments by which EU sanctions are imposed. EU Regulations have direct effect in all EU member states. EU sanctions apply to:

1. all entities organized or incorporated in EU member states and all nationals of EU member states, in each case, regardless of whether they are operating within the territory of the EU; and
2. throughout the territory of the EU to all entities and personnel, wherever organized or incorporated and / or regardless of their nationality, in respect of any conduct that takes place within the territory of the EU, whether in whole or in part.

While EU Regulations contain the substantive EU sanctions rules, the competent authorities of each EU member state are responsible for administering and enforcing those restrictive measures (including setting the penalties for violations) within their territory and on legal and natural persons falling under their jurisdiction.

Singapore sanctions

In response to Russia’s tensions with Ukraine, under MAS Notice SNR-N01 issued by the Monetary Authority of Singapore (MAS), the Singapore government imposed a number of financial measures targeted at entities and activities in Russia. All financial institutions in Singapore, including banks, finance companies, insurers, capital markets intermediaries, securities exchanges, and payment service providers must not, directly or indirectly, enter financial transactions or arrangements or provide financial assistance or services that facilitate fund raising by any entity owned or controlled by Russian government, directly or indirectly, or acting on their direction or behalf.

Russia counter sanctions

In response to the international sanctions introduced against various sectors of the Russian economy, on May 3, 2022, the President of the Russian Federation issued Decree No. 252 which prescribed certain restrictions for Russian public authorities, legal entities and individuals on entering into transactions with foreign persons associated with foreign States that commit unfriendly acts against Russian legal entities and individuals and persons who are under control of these foreign persons, regardless of their place of registration or place of predominant profit from their activities. According to Decree No. 252, any Russian person (including Russian public authorities) shall be prohibited from:(a) executing any new transactions (including foreign trade contracts) with unfriendly foreign persons (may include any legal entity or individual and entities under their control); (b) discharging their obligations in favor of unfriendly foreign persons under existing contracts; and (c) conducting any finance operations in favour of the unfriendly foreign persons.

Impact of Sanctions

The effect of these sanctions has taken the form of “Corporate Untouchability”. It extends to the supply chains linked to sanctioned entities. Due to sanctions risks, US and EU engineering companies withdrew support to oil & gas and infrastructure companies in India. This impacted front-end engineering design (FEED) and offshore installations for sanctioned entities. The suspension of IT services had immediate consequences for invoicing, GST compliance, plant maintenance, cybersecurity, and general day to day working of sanctioned entities. While such sanctions can be challenged in the relevant courts, litigation timelines and vendor risk policies often prolong these disruptions.

Globally exposed Indian banks are de-risking by avoiding transactions with sanctioned firms, forcing these companies to turn to lenders with minimal western linkages or to consider rupee or third-country currency mechanisms.

US and EU sanctions have gravely affected business operations of Indian companies. The Russian counter sanctions impacted Indian public sector undertakings as repatriation of dividends for their investments in Russian oil and gas fields was prohibited since these investments were held by Singapore subsidiaries of the public sector undertakings which was deemed as an unfriendly country of Russia. Microsoft suspended its services, and Systems Application and Processes (SAP) support was curtailed, prompting Nayara Energy to seek legal relief in the Delhi High Court and to adopt interim local IT and email providers. Banking constraints have tightened as well, with the State Bank of India reportedly halting Nayara’s international trade and foreign exchange transactions to avoid sanctions exposure. EU and UK restrictions on shadow fleet vessels and reinsurance further amplified voyage risks and insurance premiums for Indian crude importers. A BP-chartered tanker (Talara) left Vadinar (a port operated by Nayara Energy) without loading 60,000 tons of diesel, and a PetroChina-chartered vessel was diverted.

Conclusion and Risk Mitigation

This situation exposes critical vulnerabilities in shipping, insurance, banking, and technology dependencies tied to western jurisdictions. From a legal perspective, companies can adopt the following pre-emptive measures:

• Contractual Review: Analysis of contracts to identify anti-sanctions provisions and structure risks.
• Transaction Structuring: Modifying terms of transactions to eliminate US/EU nexus such as changing payments due under contracts to non – USD/Euro currencies.
• Sanctions Screening: Verification and background diligence of business partners and shipping providers to identify connections with restricted supply chains.
• Regulatory Monitoring: Continuously monitor communications and updates from US regulatory bodies like OFAC for new guidance, implementation specifics, or possible exemptions.
• Reputational Risk Management: Verify disclosure requirements under stock exchange laws and contracts.