As Western sanctions intensify, Russia is looking for new markets for its oil exports, and India has been 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 is clearly having a terrible impact.”
India is the world’s third-largest oil user, behind the United States and China, with almost 80% of its oil imported.
India imported roughly 12 million barrels of oil from Russia in 2021, accounting for only 2% of its overall imports.
Last year, the Middle East provided by far the most supply, with considerable amounts also coming from the United States and Nigeria.
India did not import any oil from Russia in January and February.
According to figures published by Kpler, a commodities research firm, contracts for March and April have already hit six million barrels.
Even if India purchases more oil from Russia, the government claims it would “still be a drop, literally a drop, in a larger bucket” of its overall oil imports.
Russia’s Ural crude oil now has fewer consumers as a result of its invasion of Ukraine, and its price has decreased.
“While we don’t know the actual price paid by India, the Urals discount to Brent oil [the global benchmark] has expanded to almost $30 per barrel in the recent week,” says Matt Smith, a Kpler analyst.
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 predicts that “at least part of this [Russian] crude will be purchased at a big discount” by India and China.
Because of Russian bank restrictions, India’s large refining corporations are having a hard time financing these reduced acquisitions.
It’s a problem that affects both sides of commerce.
According to financial experts Bloomberg, Indian exporters to Russia are owed over $500 million (£381.5 million).
One of the solutions India is considering is a local currency transaction system, in which Indian exporters to Russia are paid in roubles rather than dollars or euros.
According to Refinitiv analysts, India’s oil imports from the US have increased dramatically since February.
Market analysts, however, believe that this will not be sustainable in the future, as the US aims to replace Russian oil supply with its own domestic production following Russia’s invasion of Ukraine.
There is also talk of resuming commerce with Iran through a barter system in which Indian oil refiners would buy Iran’s oil. When the US reimposed sanctions on Iran three years ago, this agreement came to an end.
However, without a larger agreement in international discussions with Iran over its nuclear program, this is unlikely to restart.