India may buy crude from Russia at hefty discounts

India-opts-for-russian-crude

Indian Market
by 5paisa Research Team Last Updated: 2022-08-08T19:03:09+05:30 IST

In the jungles of Africa it is said that one beast’s demise is another beast’s dinner. The situation is not too different in the rough and tumble world of global business. One man’s loss is another man’s profits and (as in the case of crude oil), one country’s embargo is another country’s opportunity.

That is exactly what is happening to Russian oil. India sees a huge business opportunity in supporting Russia by buying Russian crude at lower prices.

India has maintained an ambivalent attitude to the Russian aggression in Ukraine. That was evident from its abstention in the votes at the UN Security Council, the UN General assembly and even the vote by the UNHRC.

US officials have asked India not to buy Russian oil, but clearly India does not want to make its largest defence supplier unhappy. It now looks like India will also help Russia by absorbing some of its excess oil.

Check - US imposes ban on oil imports from Russia

For India, this is a god-sent opportunity. It currently imports about 80% of its daily oil requirement, although Russia accounts for just about 3% of its oil import share. But there is a major problem. Oil is up 40% this year and that is likely to impact the landed cost of oil and also result in imported inflation.

It is in this context that India has agreed to absorb Russian oil, since Russia is more than willing to offer steep discounts to lure customers.
 

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However, this cannot be started immediately. It needs some building blocks like transport logistics, insurance cover and getting the right blend of crude. In addition, since Russia was blocked from SWIFT by some countries, payments could become a major challenge.

That is where the Indian government is working with Russian authorities to put in place a system of Rupee/Rouble trade wherein payments can be made in rupees or roubles. That effort is on.

For India, it is not just about oil but a plethora of other products like Fertilizers. India is also currently looking at Russia to import fertilizers since that is also facing major shortages in India. However, defence is one segment where the links are old and deep and is unlikely to change in a hurry.

The US is not sure if the embargo will also apply to India for trading with Russia, but that remains a moot question among policy makers.

Even as the controversy continues, the Indian stand is that the Russia / Ukraine conflict was not something that India had created. India has cut its defence imports from Russia by over 53% in the last five year.

India has decided to make hay while the sun is still shining. That is not a bad idea, since it makes a lot of sense to India; both diplomatically and economically.

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