Friday, 17 May, 2024
By: Damini Mehta
An analysis of the discounts offered by Russia shows that the discount on the delivered price of Russian crude, including freight and insurance, was around 5.7% in October compared to the average delivered price of oil from Iraq, Saudi Arabia, and the UAE. In June 2023, when the import volumes were at a peak, the discount sat at 22.7%.
In a significant shift in India's oil import landscape, the share of Russian crude in the country's oil basket reached an eight-month low in October. The decline in Russia's market share is attributed to shrinking discounts on Russian crude oil, prompting a resurgence in market presence for traditional West Asian suppliers, namely Iraq, Saudi Arabia, and the United Arab Emirates (UAE). India is the world’s third largest consumer of crude oil and imports as high as 85% of its requirement. With a refining capacity of over 250 million tonnes per annum, or 5 million barrels a day India is a major supplier of refined oil to the world.
Following Russia’s invasion of Ukraine in February 2022, western countries including the US placed sanctions on trade with Russia. To deal with the sections, Russia offered deep discounts on its oil to willing buyers following which Indian refiners started increasing their purchase of Russian crude. Since then, India saw a marked increase in oil imports from Russia and has maintained that its decision of importing crude oil from a country will depend on policies beneficial to the country.
In October 2023, Russia's share in India's oil imports by volume dropped to 32%, down from 34.8% in September. This marks a four-month consecutive decline from a peak of 44.7% observed in June of this year. At the same time, India’s imports from Iraq, Saudi Arabia, and the UAE combined have reached a seven-month high of 44% in October. This is a steady jump from June, clearly replacing imports from Russia.
Iraq, Saudi Arabia, and the UAE fall in the list of Organization of the Petroleum Exporting Countries (OPEC) and its share in India's oil import volumes has risen to 50.2% in October, up from 49.1% in September. Interestingly, in April 2022, when Russian oil deliveries were on the rise, OPEC's share stood at 71.3%, with Iraq, Saudi Arabia, and the UAE collectively holding a substantial 61% share in India's oil imports.
Prior to the conflict in Ukraine, Iraq was India's primary source of crude, followed by Saudi Arabia and the UAE, with Russia playing a marginal role. However, in the aftermath of Russia's invasion of Ukraine in February 2022, Western nations started avoiding Russian oil, prompting Moscow to offer deep discounts to attract buyers, resulting in Russia ascending to the top spot among India's oil suppliers.
According to experts, discounts on Russian oil have dwindled significantly in recent months due to factors such as high oil price volatility, shipping and insurance charges, export cuts by Russia, and the country's domestic demand for petroleum products.
An analysis of the discounts offered by Russia shows that the discount on the delivered price of Russian crude, including freight and insurance, was around 5.7% in October compared to the average delivered price of oil from Iraq, Saudi Arabia, and the UAE. In June 2023, when the import volumes were at a peak, the discount sat at 22.7%.
Despite the visible reduction in discounts, these concessions continue to be crucial for India, which relies on imports for over 85% of its oil requirements. Indian refiners are estimated to have saved approximately $3.3 billion in the first half of the current financial year (FY24) through the purchase of discounted Russian crude oil, with the savings expected to rise to $3.55 billion for April-November. However, the actual discount levels remain shrouded in mystery due to the opaque pricing of Russian oil cargoes, bought by Indian refiners on a delivered basis, including the cost of freight and insurance. Consequently, even slight reductions in concessions translate into significant savings for India in foreign exchange.
