Despite the West’s economic sanctions, discounted Russian oil is still making its way to the international markets. In fact, oil deliveries from Russia to India are increasing. Meanwhile, China, already Russian oil’s largest customer, also plans to buy more.
Discounted Russian Oil Available
After Russia invaded Ukraine in late February, oil deliveries headed for India reportedly increased significantly.
As Moscow continues to offer cheap oil, New Delhi will take advantage of this opportunity to buy more. In addition, China, which is Russia’s largest oil customer, also plans to take advantage of large discounts in purchasing more Russian oil.
Kepler lead oil analyst Matt Smith believes that “China, and to a lesser extent, India will step up to buy heavily discounted Russian crude.”
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For the rest of the world, this could signify higher crude prices. Major oil importing countries are already struggling with higher crude oil prices.
Prices were already surging higher when the Ukraine-Russia conflict hit. As a result, oil prices are now 80% higher compared to last year.
European Sanctions Do Not Include Russian Oil, At Least Not Yet
Despite the barrage of economic sanctions leveled at Russia, these bans do not include oil and gas exports. Only the US made the firm declaration not to buy Russia oil and gas.
However, the US imports only a small fraction of its energy requirements from Russia. Meanwhile, the European Union, which heavily depends on Russian imports, has yet to decide on including oil and gas in its embargo plans.
The United Kingdom also declared a ban on Russian energy, but this will start only at the end of this year.
With a potential downsizing of its European market, Russia now looks for buyers for its oil. It didn’t have to look far as both India and China, attracted by discounted Russian oil, are buying in.
Last year, infrequent deliveries from Russia to India totaled 12 million barrels. However, India is now waiting for a delivery of 6 million barrels to arrive by April. “This is about half the entire volume discharged last year — a significant uptick,” Smith said.
Some Countries Can Save on Discounted Russian Oil
Savings are the primary reason for buying discounted Russian oil. The International Energy Agency reported earlier this month that Urals crude is trading at record discounts.
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Some commodity trading companies such as Glencore and Vitol are offering $25-$30 discounts per barrel. This is according to Ellen Wald, president of Transversal Consulting.
So far, few Asian countries took up the offers. Many remain hooked to their traditional supplies in the Middle East, Latin America, and Africa.
However, huge potential savings plus a steady supply can drive demand for discounted Russian oil. As a result, Indian refiners are now issuing several tenders for Urals crude.
Russia exports around 5 million barrels of crude daily. Per the IEA, it’s the world’s third-largest oil producer after the US and Saudi Arabia.
Once discounts hit 20% per barrel. India could start ordering even more oil from Russia. New Delhi currently gets its supply of crude from Iraq, Saudi Arabia, UAE, and Nigeria.
Russian oil imports only account for between 2-5% of its total in a year. However, the current high prices will eventually swing India to get discounted Russian oil.
Samir N. Kapadia, head of trade at government relations consulting firm Vogel Group, says that this has nothing to do with politics.
“Today, the Government of India’s motivations is economic, not political. India will always look for a deal in their oil import strategy,” he said. When a country imports 80-85% of their oil, getting a 20% discount is a big deal, he added.
Watch the WION news video reporting that the Indian government defends itself for buying Russian oil at discounted price amid the war in Ukraine:
What do you think of India and China still buying discounted Russian oil? Will this affect the economic embargo leveled at Russia by the US and the EU?
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