Lower discounts, payment issues: Why India's Russian oil binge may take a hit

NEW DELHI: Is India's oil binge from Russia finally showing signs of decline? Sources said the country's imports of Russian crude, which soared to record highs this year, are slowing down due to narrowing discounts and payment troubles.

According to people familiar with the matter, the discounts on Russian crude have reduced to just $4 per barrel from the peaks of $25-30.

Russia has heavily relied on countries like India, China, Turkey and Bulgaria for oil sales since the imposition of sanctions following its invasion of Ukraine.

It emerged as the biggest oil supplier to India with domestic refiners gorging on discounted crude. Due to record purchases, Russian crude accounts for about 40% of India’s total oil imports, up from less than 2% in before the Ukraine conflict.

However, discounts on Russia's flagship Urals grade have now tumbled to $3-$3.5 a barrel for August loading and September delivery, while the availability of Russian oil in spot markets has declined, a source at one Indian refiner said.



Due to falling discounts, Russian oil is often priced above the $60 per barrel ceiling imposed by Western nations, an official told Reuters.

Discounts have been narrowing due to Opec+'s decision to cut output.

The "shift to Russian oil had happened because of discounts. How would you make payment if the price is above the $60/barrel ceiling?" said a government official.

Payment woes
Indian refiners are also facing problems in making payments for Russian cargoes due to western sanctions.

The Indian Oil Corp recently had to make payment in Chinese yuan because of shipping problems as the State Bank of India refused to furnish payment due to western sanctions on the shipping agency, the official said.

Indian refiners buy Russian oil on delivered basis, wherein the seller arranges shipping and insurance, to avoid falling foul of the sanctions.

This aspect became more important after the G7 slapped a price cap of $60 for seaborne Russian energy exports, making shipping or insurance — 60% controlled by European entities — difficult to obtain for oil sold above the ceiling.

“This and splintered procurement by Indian refiners — especially state-run entities that are the biggest buyers — are what the sellers of Russian oil are exploiting. They are charging $11-19 per barrel freight from Baltic or Black Sea ports, or nearly double the normal, while invoicing the crude at $1-2 less than the price cap,” a person involved in the trading told TOI.

He said Indian buyers could lose the discount soon if oil prices decline further and narrow the gap with the G7 price cap.

Looking for alternatives
With Russian discounts narrowing, Indian refiners may be forced to ramp up supplies from other countries.

An official told Reuters that Iraq is willing to supply more oil to India at better discounts and India is also talking to Iraq to extend the credit period to 90 days from 60 days.

Iraq has been pushed to second position since Indian refiners boosted imports of Russian oil last year.

"A longer credit period from a traditional supplier makes more sense than getting embroiled into $1 discount per barrel from a company to which making payment is difficult", the official added.

A separate refining source said his company will not buy Russian oil if it is priced above the $60/barrel cap.

"We know the discounts are receding, we don't know what could be discount for September loading cargoes," he said.

(With inputs from agencies)

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