Russia expected to remain top crude oil supplier to India in medium term: Experts

(Representative image: Reuters)

Russia is expected to retain the position of top supplier of crude oil to India in the medium term, according to energy experts.

Energy tracker Vortexa said Russia was the top exporter of crude oil to the country in December, supplying 1.17 million barrels per day (bpd) during the month, surpassing Saudi Arabia and Iraq.

Due to multiple sanctions imposed on Russia by the European Union and the West, Moscow has been exporting its crude oil to countries including India and China at discounted rates.

According to the experts, this trend will continue as far as India is concerned unless it faces some regulatory pressure.

“India will probably continue to import as much as it can from Russia because there are very few export destinations that Russia has with the price cap and other restrictions imposed on free trade of Russian oil in the market. Unless there is regulatory pressure, it is likely that India would continue to import as much as possible from Russia. I don’t think the mix will change much in the near term,” said Probal Sen, energy analyst, ICICI Securities.

India has made it clear that it will give its own energy needs priority and continue to buy oil from Russia, despite the intensified geopolitical pressure against that country.

“CRISIL Research expects Russia to continue to be one of India’s top exporters in the medium term, primarily owing to the positive cost economic advantage. However, the continuation of discounts to offset elevated shipping and insurance costs and incremental sanctions on Russia will continue to be a key monitorable,” said Hetal Gandhi, director, research, CRISIL Market Intelligence and Analytics.

Nitin Tiwari, executive vice president, Yes Securities, said that for the next month or two, Russia is likely to remain the top supplier of crude oil to India.

Beating traditional suppliers

Prior to the Russia-Ukraine war, India imported the majority of its oil requirements from Middle Eastern countries such as Saudi Arabia and Iraq while Moscow used to contribute only 0.2 percent of the total imports. However, the trade equation has changed since then.

Russia began diverting oil supplies from its traditional markets to countries in Asia after Europe — its largest market — imposed sanctions on Moscow. India and China have become the largest buyers of Russian oil, benefiting from the discounted oil supplied by Russia.

India has saved thousands of crores of rupees buying the cheaper crude oil. Top Indian government officials have defended the country’s decision to buy Russian oil stating that their utmost moral duty lies with the consumers.

“Russia’s share has witnessed a steady growth since the Ukraine crisis, rising from 6 percent for April 2022 to 23 percent in November 2022. This is primarily attributed to steep discounts provided by Russian producers, which more than offset high freight and insurance costs, thus resulting in overall realisation to be at an 8-10 percent discount to the overall Indian crude basket,” said Gandhi.

Saudi Arabia and Iraq have been unable to compete with Russia due to the steep discounts offered by the latter.

Quality of crude oil

Even though pricing remains the main factor, quality of crude oil also plays a role in choosing the source of crude oil imports, said experts.

“Other than pricing, companies look at the grade of crude oil. Each refinery is considered to handle a certain type of crude; and depending on what the refinery can handle and what is required, companies procure crude. The procurement of crude is dependent on their commercial decision and the kind of crude they are looking for such as light, hard, sweet, sour, so on and so forth,” Tiwari said.

The oil industry has classified crude oil based on its sulphur content (sweet or sour) and density (light or heavy).

Russian discounts

Experts said that it is difficult to determine whether Russia will continue to offer the existing deep discounts on its crude oil to India or of it will lower the discounts in coming months.

“Unless Russia finds an opportunity to sell its crude somewhere else, I don’t see much happening on the pricing front. Unless Russia manages to send more crude to China at a slightly better rate with the country’s reopening, I don’t see why discounts should be renegotiated,” Sen said.

In November 2022, India bought about 40 percent of all seaborne Russian Urals oil, higher than any other country, showed Reuters calculations, based on Refinitiv and traders' data.