The International Energy Agency (IEA) in its latest oil market report has indicated that India’s seaborne imports from Russia could be heading into uncomfortable territory.

“Willing buyers in Asia, namely India and, to a lesser extent, China, have snapped up discounted crude oil cargoes, but increasing volumes on the water suggest that the share of Russian oil in the import mix may be getting too big for comfort,” it said.

Major importer

According to the IEA, India accounted for 40 per cent of Russia’s crude oil imports in February 2023. Russian oil exports fell by 5,00,000 barrels per day to 7.5 million barrels a day (mb/d) last month as the EU embargo on refined oil products came into force (February 5).

India and China, the world’s top fossil fuel consumers, procured more than 70 per cent of Russia’s crude exports in February, as per the IEA.

However a senior government official said that so far there is no indication that anyone wants India’s relationship with Russia to stop. The objective is to dilute its export earnings from crude oil.

“This is purely a commercial decision, besides the price cap is being followed. No official communication has been received. The government is seized of the sensitivity and is acting accordingly. It just beats logic that there is cheaper crude available and if it is legally possible to procure it, then why not,” the official added.

Changing dynamics

Trade sources said that this is an evolving situation. India has largely been snapping up cheap Russian crude, of which Ural blend is around 80 per cent followed by Sokol and ESPO blends, as discounts are still being offered in the range of $20 per barrel (mostly for Ural).

“Ural is largely below the G7 price cap. The price level may be breached in case of Sokol as discounts are low below $5 a barrel (to the benchmark Dubai price). This may breach the cap thereby making it difficult to find insurance and freight. But, India has also started paying in Roubles and the UAE’s Dirham. so the market does not expect major disruptions so far,” one of the sources said.

Over the past year, 4.5 mb/d of Russian oil that was previously going to the EU, North America and OECD Asia Oceania has had to find alternative outlets.

Currency conundrum?

An official with an oil marketing company said, “Refiners will continue to import at similar levels, if not more, from Russia till there is a business case, meaning, availability of insurance and logistics. Payments are already being made in Roubles and the UAE’s Dirham as an alternate arrangement to the Dollar.”

On whether currency issues will impact India’s relationship with Russia, Kpler’s Lead Analyst (Dirty Products and Refining), Andon Pavlov said “While it is probably a bit inconvenient, especially until these payments have been established, the price and realised margin afterwards, respectively, it is just too attractive to hinder this stream from retaining its strength, due to the more complex financial operations required. In short, no, this appears to be a minor hiccup and will not have a material effect.”