Russian oil discount shrinks 87% to $4/barrel as sellers game shipping, insurance to skirt G7 price cap

NEW DELHI: The love affair with Russian oil appears to be losing its charm for Indian refiners as discounts have shrunk to $4 per barrel from peaks of $25-30, with sellers going dark on shipping rates to cover the gap with benchmark Brent crude and skirt western price cap, people in the know told TOI.

Russian crude now accounts for about 40% of India’s total oil imports, up from less than 2% in before the Ukraine conflict. Indian refiners began lapping up Russian crude as sellers began offering hefty discounts as Western buyers shunned those barrels as the US and the EU slapped sanctions on Russia, including its energy exports.

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 said.

He said Indian buyers could lose the discount soon if oil prices decline further and narrow the gap with the G7 price cap. “Three little known agencies dominate shipping and insurance bids floated by Russia for shipments to India. These are not linked to global benchmarks. So they can easily game the tenders and bring the net cost of Russian oil close to the benchmark crude — currently at $75-76,” he said.

Moscow is believed to have built up a tanker fleet by shadowy shipping companies that are believed to be moving about a quarter of the Russian crude.

The only way to protect Indian interests is through collective bargaining — especially by state-run refiners. “China is flooded with Russian oil and cannot consume more as its economy is not picking up. India is the only major buyer left where the consumption is growing apace at 5-6% annually. This should be leveraged for term deals,” he said.

A pointer to the benefit of a term deal is IndianOil’s arrangement with Russian major Rosneft for 6 million tonne of crude, reportedly locking in a discount of around $8 per barrel.