As Western sanctions tighten, Russia is looking for new markets for its oil exports, and India is taking advantage of lower prices to increase imports from the nation.
Although these oil supplies do not breach sanctions, the US has stated that “support for Russia…is support for an invasion that certainly is having a terrible impact.”
Where does India get its oil?
After the United States and China, India is the world’s third-largest user of oil, with more than 80% imported.
In 2021, India purchased around 12 million barrels of oil from Russia, accounting for barely 2% of total imports.
Last year, the Middle East supplied by far the most, with considerable amounts also coming from the United States and Nigeria.
However, according to statistics gathered by Kpler, a commodities research firm, contracts for March and April have already hit six million barrels.
The Indian government claims that even if it purchases more oil from Russia, it will “still be a drop, literally a drop, in a larger bucket” of its worldwide oil imports.
What’s the deal India is getting?
As a result of Russia’s invasion of Ukraine, there are fewer consumers for Ural crude oil, and its price has decreased.
“While we don’t know what India is paying, the Urals discount to Brent oil [the global benchmark] has expanded to over $30 per barrel in the last week,” says Matt Smith, an analyst at Kpler.
Normally, the prices of these two forms of oil are comparable.
However, when the price of Urals continued to fall in March, the disparity between them hit an all-time high, he says.
As a result, he believes that “India and China are likely to acquire at least part of this [Russian] oil at a big discount.”
What’s the impact of financial sanctions?
Because of Russian bank restrictions, India’s major refining corporations are having difficulty financing these reduced imports.
It’s a problem that affects commerce in both directions.
Bloomberg estimates that Indian exporters to Russia are presently awaiting payments of $500 million (£381.5 million).
One possibility being considered by India is a transaction system based on local currencies, in which Indian exporters to Russia are paid in roubles rather than dollars or euros.
Where else is India looking to buy oil?
According to Refinitiv analysts, India’s oil imports from the United States have increased dramatically since February.
However, market analysts believe that this may not be sustainable in the future as the US looks to replace supply from Russia following its invasion of Ukraine.
There are also speculations that commerce with Iran may continue through a barter system in which Indian oil refiners could purchase Iranian oil. This deal came to an end three years ago when the United States reimposed sanctions on Iran.
However, this is unlikely to happen until a larger agreement is struck in international discussions with Iran over its nuclear programme.
