Russian oil sanctions after the outbreak of the Russia-Ukraine War in February 2022 shifted Russia to gradually increase its economic cooperation with both China and India. Russia’s pivot away from the West has caused its trade with India and China to reach record levels, with two-way trade in 2023 reaching $240 billion with China and over $50 billion with India.
The increasing trade relationship between the three countries poses legal and reputational risks for companies with upstream supply chains in India and China. A rising number of companies from both countries have been accused of violating existing Western sanctions by selling prohibited items to Russian customers. Additionally, rising purchases of Russian exports by India and China has also raised the likelihood that companies in both countries could run afoul of new sanctions packages being prepared by the U.S. and the EU.
Here we examine the extent to which different industrial sectors in India and China are exposed to Russian exports and how sanctions against Russia have impacted companies operating in both countries.
Russian oil sanctions drove exports to India
Russian exports to India have increased dramatically over the past two years, with the total value of exports spiking around 368% between 2021 and 2022. The rise in exports from Russia to India has been driven almost exclusively by oil products classified under HS code 27, which has seen the country rise to become the second largest importer of Russian crude oil globally.
Indian imports of oil products from Russia have risen from just over $5.25 billion in 2021 to nearly $46.47 billion over the course of 2023 and early 2024. The spike in exports has been driven by a collapse in Russian crude exports to the EU since the beginning of the Russia-Ukraine War as well as an ongoing G7 price cap that has limited the price of Russian crude to $60 per barrel.
India’s rising purchases of Russian crude products have increased sanctions-related risks in the country’s oil and gas industry. For example, Russian oil shipments to India have been impacted in recent months following the implementation of U.S. sanctions against Russia’s largest maritime shipping company, PJSC Sovcomflot. The sanctions have already caused the supply of Russian crude oil to India in January to slump to a one-year low, a 35% drop from 2023’s peak. The sanctions have caused Indian refiners to refuse shipments of crude oil.
Russia and India’s coal trade
In addition to crude oil, trade data also indicates that around 10.6% of Russia’s total exports to India in 2022 comprised of coal, a key material in steel and metals manufacturing. Russia emerged as an alternative source of coking coal for Indian steel and metals. This was due to increasing coal prices from Australia and the willingness of some Russian companies to accept payments in rupees instead of U.S. dollars. However, shipments of coal to Indian steelmakers will likely be pinched this year following a new sanctions passage passed by the U.S. in February 2024 that targets major Russian coal exporters .
Diamonds in Russia and India
Sanctions imposed by G7 and the EU countries on rough diamonds mined in Russia will continue to remain a challenge for the Indian diamond industry, which produces 95% of the world’s polished diamonds. In October 2023, the diamond manufacturer Shree Ramkrishna Exports was forced to suspend its cooperation with sanctioned Russian entities, and it is estimated that newly announced Western sanctions will affect Indian diamond exports by 25-30% in 2024.
Russian and Indian electronics and machinery
Indian electronics and mechanical equipment manufacturers do not appear to be dependent on Russian parts as shipments of mechanical and electronic parts under HS codes 84 and 85 comprised less than 0.5% of exports from Russia to India in 2022. Conversely however, trade data indicates that Russia is becoming a growing market for Indian companies in the electronics and engineering sector, with India’s annual export of machinery, auto parts, and other engineering goods to Russia reaching over $1 billion in the nine months before December 2023.
Indian companies involved in the development of dual-use electronics and other machinery products appear to be especially exposed to sanctions risk as at least three Indian companies have already been sanctioned for allegedly supplying parts to the Russian military.
Other Indian electronics companies have also been placed on the U.S. Department of Commerce Entity List, which imposes license requirements on sales of certain technologies to the affected entities.
Russian oil sanctions and China trade growth
Economic cooperation between Russia and China has continued to grow over the past two years with bilateral trade between the two countries rising 26% in 2023 to a record high of $240.1 billion on the back of a nearly 47% y-o-y increase in Chinese exports to Russia and a 13% y-o-y increase in Chinese imports of Russian goods amounting to around $129.25 billion.
Much like India, China has also taken advantage of Western sanctions and price caps on Russian energy sources to purchase large quantities of Russian crude oil – a move that has made Russia the country’s largest oil supplier. Trade data indicates that Russian oil products under HS code 27 comprised around 73.5% of all Russian exports to China in 2022, with Russian crude exports to China also topping 107.02 million metric tons in 2023.
Industrial metals in Russia and China
China has become a major destination for Russian metal products with Russian exports of copper, aluminum, and nickel articles valued at slightly over $5.3 billion in 2022. Chinese imports of Russian industrial metals are expected to continue increasing in 2024 as both the EU and the U.S. have recently imposed new sanctions that prevent major metal exchanges in the West like the London Metal Exchange and the Chicago Mercantile Exchange from accepting any shipments of Russian nickel, aluminum, and copper produced after April 13.
These sanctions could raise the exposure of Chinese metals makers to sanctioned Russian metals companies. Companies purchasing metal components from China will also have to be aware of additional compliance and due diligence risks as Chinese companies have reportedly been disguising new copper wire rod shipments as scrap metal in order to bypass Western sanctions.
Russia and China electronics and machinery
Chinese exports to Russia are largely composed of exports of machinery, mechanical components, and electronic parts under HS codes 84 and 85, with exports of these parts reaching over $30 billion or around 40% of all Chinese goods sold to Russia in 2022. Trade data also indicates that Russia is particularly dependent on China for exports of dual-use machine tools and microelectronics for use in Russia’s defense sector, with Chinese manufacturers accounting for around 70% of Russia’s machine tools imports and 90% of microelectronics shipments during the last quarter of 2023.
The ongoing export of Chinese-made machinery and electronic parts to Russia has increased sanctions and reputational risks for companies with upstream supply chains in China as the U.S. and EU have imposed sanctions against more than 100 Chinese companies in both sectors. Research by Everstream Analytics indicates that most of these sanctioned companies are involved primarily in the procurement and distribution of dual-use electronic components for Russia’s military.
In addition to the Entity List, a total of 70 entities from China and Hong Kong are currently on the U.S. Department of the Treasury’s SDN sanctions list for ties to the Russian military. More than 20 Chinese companies were recently added into the list by the Office of Foreign Assets Control on May 1.
The EU began imposing sanctions on Chinese companies that supply dual-use components to Russia, with the EU’s latest 13th sanctions package in February 2024 imposing restrictions on four Chinese companies – Guangzhou Ausay Technology Co., Ltd., Shenzhen Biguang Trading Co., Ltd., Yilufa Electronics Limited, and RG Solutions Limited. The EU’s decision to impose sanctions on the four companies in February marked the first time the organization has sanctioned firms in mainland China due to the Russia-Ukraine war.
Everstream clients are receiving more detailed insights and recommendations about this risk.
Don’t miss key supply chain risk updates! Subscribe now to get supply chain news, weather updates, forecasts, and other insights.