Russian discounted oil sales to India might get it into conflict with OPEC

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Joseph P Chacko
Joseph P Chacko
Joseph P. Chacko is the publisher of Frontier India. He holds an M.B.A in International Business. Books: Author: Foxtrot to Arihant: The Story of Indian Navy's Submarine Arm; Co Author : Warring Navies - India and Pakistan. *views are Personal

According to Bloomberg, India is trying to get significant discounts on Russian oil and wants to buy it below $70 per barrel. Purchases could reach a stable level of 15 million barrels if Russia agrees to India’s price requirements, the publication claims.

Representatives of the Indian side at the talks with Moscow noted that in this way, India wants to compensate for the additional costs associated with the purchase of oil from Russia against the background of the aggravation of the geopolitical situation and the growth of sanctions pressure, the sources say.

Bloomberg had previously reported that India had decided to go for privately negotiated oil deals abandoning the tender route. 

Conflict with OPEC

Deals, even with a significant discount, will bring significant profits to Russian oil companies. 

Russian grades of oil, including the Urals, are sold on the world market at a significant discount in relation to global brands, primarily Brent, the grade closest to Russian oil. In recent years, the price of a barrel of Urals has only slightly differed from the price of a barrel of Brent, about a few per cent, but due to the difficult international situation, the premium has increased significantly.

According to data from the ICE intercontinental exchange, Brent crude is currently trading at about $108 per barrel.

Because of the uncertainty about the issue of Russian oil on the world market, discounts on the sale of oil are quite possible, and it may be a point of contention between Russia and OPEC if steeper discounts are given. 

Unlike Natural Gas, the price of which Russia can privately negotiate, oil prices are controlled by the OPEC + cartel. If Russia starts dumping oil, then we can bring discontent on the part of OPEC.

At this point, Russia may not want to pick up a fight with Saudi Arabia, which had refused to increase the oil output by standing up to the United States and the European Union. 

At the same time, as of the beginning of May, the price of Urals oil on the market fluctuates around $80 per barrel. 

If Moscow agrees to give India a 35% discount on oil purchases, then Indian refineries will be able to receive about 15 million barrels per month, Bloomberg writes.

Increased Cost

Western sanctions do not ban the import of Russian oil to India, but international shipping companies have become reluctant to ship oil from Russia to Asia, and Russian carriers have had problems securing their routes. It makes it difficult to charter ships for the export of Russian oil.

The media reported that at the end of April, the Indian company Oil and Natural Gas Corp (ONGC) could not find a ship to transport 700,000 barrels of Russian oil from the Far East. According to Reuters, in order to transport the oil, ONGC needed a vessel capable of sailing in ice conditions. The search for a tanker has become significantly more difficult due to reputational risks for carriers and difficulties with obtaining insurance.

Rupee-Rouble Payment

Earlier it was reported that Russia is offering India a mechanism for double payments: for Russian oil – in dollars or euros, for other goods – in rupees and rubles through an alternative SWIFT Russian Financial Message Transfer System.

Representatives of the Russian Central Bank and Sberbank discussed these proposals with their Indian counterparts and representatives of the Indian Ministry of Finance, but no final decision has yet been made.

India – Russia Oil trade

India imports over 85% of its oil, and every day the country needs 5 million barrels of oil.

Reduced demand from Europe has already led to a reduction in oil production in Russia, and by the end of the year, it may decrease by 17%.

Last week it was reported that the Ministry of Petroleum and Natural Gas of India asked the state-owned energy companies to consider the possibility of acquiring BP’s stake in Rosneft.

Bloomberg notes that India has remained one of the few countries that have not yet refused to import Russian oil.

“Public and private refineries in the world’s third largest oil importer have bought more than 40 million barrels of Russian oil since Russia’s invasion of Ukraine at the end of February,” writes Bloomberg.

“It is 20% more than Russia’s supplies to India for 2021,” the agency wrote.

As an exception, in mid-April, the Indian Oil Corporation abandoned high-sulfur grades of oil, including the Russian grade Urals. The largest Indian oil and gas company also refused to buy brands Das, Eugene Island, and Thunder Horse. Experts attributed this to political pressure from the United States.


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