Russian oil to India faces new challenges

Russian oil exports to India are at risk amid new US sanctions imposed on Moscow, adding complexity to the endeavours of the Indian state-owned refiners in securing their yearly supply agreements, as per Reuters report citing people familiar with the matter.

Washington’s new sanctions on Moscow on Friday mark year two of the Russian-Ukraine conflict.

The new sanctions are directed at Sovcomflot, Russia’s primary tanker group, which Washington alleges has been implicated in breaching the G7’s price ceiling on Russian oil. Additionally, the sanctions encompass 14 crude oil tankers associated with Sovcomflot.

According to sources, Indian refiners are apprehensive that the recent sanctions may present “challenges” in acquiring vessels for Russian oil transport, potentially leading to increased freight rates. This situation could result in a reduction of the discount for the oil, which is procured from traders and Russian companies on a delivered basis.

Furthermore, Moscow might have to increase the volume of oil routed through traders to mitigate the risk of further sanctions, thus exacerbating uncertainties in the market, unnamed sources told Reuters.

Before 2022, India infrequently purchased Russian oil due to the high freight costs. However, refiners in the world’s third-largest oil-importing nation have now become significant purchasers, capitalising on lower prices, particularly after Europe implemented a ban on Russian oil imports.

In 2023, Russia rose to become India’s primary oil supplier. Through both term agreements and spot market transactions, India imported approximately 1.66 million barrels per day of Russian oil, a substantial increase from the average of 652,000 barrels per day in 2022.

According to sources, state-owned refiners Indian Oil Corp, Bharat Petroleum Corp, and Hindustan Petroleum Corp are in talks with Russian Rosneft.

They aim to finalise an annual agreement to secure a combined volume of up to 400,000 barrels per day (bpd) of Russian oil, predominantly Urals grade, for the fiscal year commencing on April 1.

Sources added that the final volumes agreed upon in the planned term deals hinge on the payment terms and discounts extended by Russia.

Rosneft has proposed a discount ranging from $3 to $3.50 per barrel compared to Dubai prices. This offer is pricier than the existing agreement between Rosneft and top refiner Indian Oil, which concludes on March 31 and entails a discount of $8 to $9 to Dubai quotes on a cost and freight basis, sources told Reuters.

As per sources’ statements, Refiners see the proposed discount as narrow, particularly in light of the uncertainties introduced by sanctions. They added that Indian state refiners are not pursuing supplies of Sokol grade crude under the planned term deal due to payment issues.

The three refiners declined to comment on the matter.

An Indian government source stated that India would persist in purchasing Russian oil solely if it is offered below the price cap and transported via non-sanctioned vessels.

The country’s oil ministry did not respond to a request for comment.

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