India laps up Russian Crude at a huge discount
As Saudi Aramco decided to hike the price of crude for its customers, with the maximum price hike for Asia, India is working alternate channels. The war between Russia and Ukraine and the sanctions on Russia have come as a blessing in disguise.
With sanctions cornering Russian crude exports, they are looking at alternate markets and India has been more than happy to lap up Russian Ural crude at fairly large discounts to the market price.
With the average crude prices at around $105-110/bbl, Russian crude is being offered to India and China at steep discounts of up to $30/bbl.
That is a huge relief for India, which relies on imported crude for meeting nearly 80-85% of its daily crude oil requirements. In the last 2 quarters, higher crude prices had led to a sharply higher trade deficit and a much sharper current account deficit. In this situation, discounted Russian oil comes as a boon.
India has clarified that their import of crude from Russia does not violate the American sanctions in any way. This is something which even America has confirmed.
However, America has also underlined that support for Russia in any way is support for an invasion that is resulting in huge loss of civilian lives. However, India has held on to its contention that the West did not explore diplomatic options sufficiently before imposing sanctions.
If you look at the current oil import mix of India, Russia plays a very small part, despite India being the third largest consumer of oil after the US and China. In 2021, India bought about 12 million barrels of oil from Russia, which is just about 2% of its total oil imports.
Most of India’s oil supplies come from the Middle East, the US and Africa. However, in the month of March 2022, India imported 6 million barrels of oil from Russia, or 50% of 2021 quantity.
The Indian government has held to the view that even if they buy more oil from Russia, it would still be a very small part of their oil import basket. Hence it is not significant enough for the western nations to really get jittery about.
For Russia, it is China and India that have stood by them in this tough time, although even China has refrained from entering into fresh contracts with Russia for oil. EU continues to import oil from Russia due to no choice.
However, there is a more practical problem. Indian refiners like IOCL and BPCL who are buying Russian crude are facing a challenge financing this crude due to sanctions on Russian banks.
Hence, despite the discounted price, India is not able to expand its purchase of Russian crude to the extent it would have preferred. They are current exploring creating a rupee-Rouble channel to specifically finance Indo-Russian trade in crude oil.
For now, there is a different equation that is playing out. PSU companies are still in a position to import Russian crude due to the immunity of being government owned.
However, Indian private companies are already refusing to buy Russian crude as it could impact their larger business interests with other countries. The next few weeks could be interesting in how the Russia crude story evolves.
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