In 2024:  ‘Several headwinds could limit India’s Russian oil imports’

Even as India’s Russian oil imports continue to be robust two years since they started rising, there are “many headwinds” to maintaining such “fast-paced imports” in 2024, commodity market analytics firm Kpler said in a recently-released whitepaper on Russia’s oil trade in over two years since its February 2022 invasion of Ukraine.

These headwinds, according to Kpler, include lower discounts on Russian oil vis-à-vis global benchmarks, increasing competition from India’s traditional oil suppliers in the Middle East, payment issues between Indian refiners and Russian suppliers, and intensifying sanctions and price cap-related actions by the United States (US)-led G7 nations.

Indian refiners started ramping up Russian oil purchases in the aftermath of Moscow’s invasion of Ukraine. As the West started weaning itself off Russian energy supplies, Moscow began offering deep discounts on its crude oil, which Indian refiners began lapping up. Prior to the war in Ukraine, Russia was a marginal player in India’s oil trade, but is now New Delhi’s biggest source of crude ahead of traditional heavyweights Iraq and Saudi Arabia.

In March, India’s Russian oil imports were around 1.7 million barrels per day (bpd), accounting for a third of New Delhi’s total oil imports of 4.9 million bpd for the month, as per preliminary ship tracking data from Kpler. The volumes, however, were notably lower that the highs of over 2 million bpd seen in the May-July period of last year. As per the agency’s forecast, it is “unlikely” that India’s Russian oil imports would slip below 1.5 million bpd in 2024 despite the stated headwinds.

According to Kpler’s analysis, the differential or discount for Indian refiners on Russia’s flagship crude grade Urals vis-à-vis global benchmark Brent crude was around $15 per barrel at the beginning of 2023, but by the end of the year, it was just around $4. The agency said that while the Russian differentials may be a lot more stable in 2024 as compared to the last year, national oil companies of West Asian countries are looking at cuts in their formula pricing this year, which could make their oil a lot more competitive vis-à-vis Russia’s.

Festive offer

“Logistically, a Saudi or Iraqi cargo delivered to the west coast of India takes only a fraction of a Primorsk-Jamnagar or Novorossiysk-Vadinar route (both from Russia to India), so the Middle East also enjoys a geographic edge over Russia … we believe Urals’ upper pricing limit will remain around a $4/bbl discount to Brent, anything sustainably above that would prompt Indian refiners to consider Middle Eastern substitution,” Kpler said.

Although displaced by Russia as the top oil suppliers to India, Iraq and Saudi Arabia continue to be major sources of crude oil for New Delhi. Ship tracking data shows that oil imports from Iraq in March accounted for almost 24 per cent of India’s overall oil imports for the month. Saudi Arabia’s share in India’s oil imports in March stood at over 15 per cent.

“With an ascent into Russian purchases as steep as India’s, there remain many headwinds to maintain such fast-paced imports. First, Russian sellers and Indian buyers are still yet to iron out their differences on the future currency of such oil flows—the Russian rouble is largely unusable for India’s refiners and vice versa for the Indian rupee, whilst the Chinese yuan is a far cry from being politically palatable in Delhi,” Kpler said.

“Second, sanctions from G7 have so far not been a game changer but they’ve recurrently put a spoke in Moscow’s wheel by needing to revamp shadow shipping companies’ insurance coverage or change the particulars of financing,” the agency added.

In December 2022, the G7 countries imposed a price cap of $60 per barrel on Russian seaborne crude, which meant that Western maritime service providers—from shipping lines to insurance providers—were not allowed to participate in Russian oil trade if the price of oil in those deals was over $60 per barrel. Western shipping and insurance players are dominant in the global shipping industry. According to the G7 countries led by the US, the objective of the price cap is to limit Kremlin’s revenue from oil exports in a bid to impair its ability to fund the war in Ukraine, while keeping the global oil markets well-supplied.

In view of the price cap, Russia started amassing a tanker fleet of its own—the so-called shadow fleet—to ship its oil. The US and its allies are now focussed on ensuring strict compliance with the price cap, and acting against price cap evasion. Over the past few months, the US has sanctioned a few shipping firms and some of their tankers for price cap evasion. While New Delhi is not a signatory to the price cap or the sanctions regime, it does not want Indian refiners to accept oil delivered on sanctioned tankers as doing so could make them potential targets of secondary sanctions.



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