Have you ever watched a magician pull an endless scarf out of his sleeve and wondered where it all actually comes from? That’s pretty much what global oil markets feel like right now when you look at Russia and India.
One moment Western governments proudly announce fresh sanctions on Moscow’s biggest oil companies, the next moment the exact same volume of crude shows up somewhere else, heading to the same refineries, at an even better discount. It’s not magic, of course. It’s just trade being trade.
The Sanctions That Changed Everything – And Nothing
Late November brought what many analysts called the toughest measures yet against Russian oil exports. Two giants that together move roughly half of Russia’s seaborne crude suddenly found themselves on the wrong side of the ledger. Overnight, their tankers became radioactive for most Western banks, insurers, and ship-tracking services.
The expectation? Russian export volumes would crater. Some forecasts predicted drops of one million barrels per day or more heading into the winter. Reality turned out rather different.
From Sanctioned Giants to Mysterious Middlemen
Within days of the measures kicking in, Indian refiners were back in the market – but this time they were buying from traders nobody had ever put on a blacklist. State-owned giants snapped up cargoes of Urals, the workhorse Russian export grade, at discounts that made CFOs smile in their sleep.
One recent deal alone involved two million barrels loading in January, priced a solid six to seven dollars below Brent. That’s attractive money when your competition is still paying closer to dated Brent levels for Middle East barrels.
“Russian oil trading networks are reorganizing quickly.”
– Major investment bank commodities desk, December 2025
The Numbers Tell the Real Story
Here’s the part that raises eyebrows in Washington and Brussels. Flows from the two sanctioned producers reportedly fell by around 1.1 million barrels per day almost immediately. Yet in the exact same window, exports from smaller, untouched Russian entities surged by roughly one million barrels per day.
Do the math. The net drop in Russian exports? Somewhere between negligible and statistically invisible.
- Big two producers: –1.1 million b/d
- Everyone else in Russia: +1.0 million b/d
- Net change: basically flat
It’s the classic shell game, just played with supertankers instead of walnut shells.
Why India Keeps Coming Back for More
Let’s be honest – running a refinery is about margins. When you can lock in crude six or seven dollars cheaper than the global benchmark, the decision almost makes itself. Indian refiners have spent years optimizing their plants for heavier, sour grades like Urals. Switching costs are real, both in dollars and complexity.
Add in the fact that domestic fuel demand keeps climbing and you understand why New Delhi never seriously entertained the idea of boycotting Russian molecules. Energy security trumps geopolitics when voters start complaining about pump prices.
In my view, the most fascinating aspect isn’t even the discount. It’s the speed at which entire supply chains reorganized themselves. We’re talking weeks, not months.
The Matryoshka Model of Modern Oil Trade
People have started calling it “matryoshka trading” – those Russian nesting dolls where you open one and find another identical doll inside. Open the sanctioned company, find a non-sanctioned entity. Open that one, find another trading house registered in Dubai or Singapore. Keep going until the trail disappears in a maze of limited liability companies.
It’s not particularly subtle, but it works. And as long as the oil keeps flowing and refineries keep making money, most participants are happy to look the other way.
What Happens When the Discounts Start Shrinking?
Here’s where things get interesting going forward. Current Urals-to-Brent differentials sit around nine to ten dollars in the physical market, but some of these new deals are closing at only six or seven. That’s still profitable, but the margin of safety is shrinking.
If Western policymakers decide to target the enablers – the trading houses, the insurers, the ship-to-ship transfer points – we could see discounts blow out again. Or we might just watch another layer of nesting dolls appear.
Either way, betting against the adaptability of commodity traders has been a losing game for decades.
The Bigger Picture Nobody Wants to Talk About
Step back for a second and consider what this actually means. The global oil market has effectively split into two parallel universes. One operates under Western rules, price caps, and sanctions compliance. The other runs on discounts, opacity, and pragmatic relationships.
India, along with China and a handful of others, has positioned itself comfortably in the second universe. And honestly? From a pure economic standpoint, it’s hard to blame them.
While European refiners pay premium prices for whatever barrels they can still source, their Asian counterparts lock in cheaper feedstock and export refined products to – you guessed it – Europe and the United States. The arbitrage never sleeps.
Where Do We Go From Here?
The honest answer? Probably more of the same, just with increasingly creative routing. Tanker tracking becomes harder every month. New flags appear on old ships. Insurance documents get more… creative.
At some point the discount will reach a level where even the most aggressive sanctions can’t make the trade unprofitable. Until then, expect Indian refiners to keep topping up inventories every time someone in Washington sharpens their pencil for another round of measures.
Because at the end of the day, oil is still the lifeblood of modern economies. And lifeblood has a way of finding new veins when the old ones get blocked.
In many ways, what we’re watching isn’t the failure of sanctions – it’s the triumph of markets doing what markets have always done: finding the path of least resistance. Whether that’s good or bad depends entirely on which side of the fence you’re standing.
But one thing feels certain. The oil will keep flowing. It always does.
