RoydadNaft –  Nayara Energy, a prominent Indian refinery with significant Russian ownership, is grappling with the impact of European Union sanctions that have restricted its access to international markets. Following the sanctions imposed on July 18, the refinery has shifted its focus to domestic fuel consumption while actively seeking new export opportunities. To adapt to these challenges, Nayara has ramped up its railway operations, now dispatching two to three trains daily to transport fuel to storage facilities across the country.

Increased Railway Operations

Since late August, Nayara Energy has significantly increased its reliance on railway transport, dispatching trains that carry 50 tanker cars each. This marks a substantial rise in railway usage, more than doubling its previous capacity for transporting diesel and petrol. The refinery’s strategic pivot comes as it faces hurdles in coastal shipping and export capabilities due to the sanctions. With limited pipeline connectivity, Nayara has sought government assistance to secure additional railcars and has received temporary permission to operate coastal vessels, including those flagged under sanctions. The company has also requested authorization for two more coastal vessels to enhance its distribution capabilities.

The operational changes reflect Nayara’s urgent need to adapt to the new market realities. A senior company official expressed concerns about the ongoing threat of further sanctions impacting their operations. The refinery, which previously sourced crude oil from various countries, now relies exclusively on Russian supplies, following the cessation of imports from Iraq and Saudi Arabia. This shift has raised concerns about potential vulnerabilities in the supply chain, especially if sanctions are tightened further.

Government Support and Challenges

The Indian government is navigating a complex situation as it provides operational support to Nayara Energy while being cautious not to provoke Western opposition. This support includes the allocation of tank wagons and the authorization for coastal vessels to transport the refinery’s products. However, the government faces pressure to enforce stricter sanctions, complicating its efforts to assist Nayara. According to Amitendu Palit, a senior research fellow at the National University of Singapore, long-term support for Nayara may not be sustainable unless there is a significant shift in global dynamics, such as a resolution to the ongoing Russia-Ukraine conflict.

Nayara Energy plays a crucial role in India’s fuel industry, contributing 8% of the country’s refined products output and managing over 6,500 petrol stations. However, the refinery has been forced to reduce its crude processing capacity to 70-80% due to difficulties in securing export customers and banking institutions willing to process payments. This reduction is a stark contrast to its previous capacity of 104%, highlighting the operational strain the refinery is under.

Operational Adjustments and Future Prospects

To sustain its operations, Nayara has adapted its logistics by increasing railway transportation to facilitate domestic distribution. The refinery’s management is actively seeking government support to acquire necessary equipment and materials that are currently restricted by sanctions. Initially planned for maintenance closure in February, the company may postpone this shutdown until April while it searches for alternative materials.

Despite the challenges, Nayara has managed to direct recent shipments to various international markets, including the Middle East, Turkey, Taiwan, and Brazil. However, the company faces significant hurdles in conducting international transactions, as the state-owned State Bank of India has halted processing trade and forex transactions for Nayara due to concerns over EU sanctions. Meetings between Nayara officials and representatives from the finance ministry and banks have yet to yield a resolution, further complicating the refinery’s ability to import crude oil and export fuel.