The country is Asia’s second-biggest crude importer and actively purchases a range of grades from flagship Urals to oil shipped from the Far East — ESPO and Sokol.
With the Group of Seven (G7) nations’ proposing a price cap of $65-$70 a barrel on Russian oil, it will be advantageous for countries like India, China and others major buyers who have been scrapping up discounted barrels ever since the US and its allies imposed sanctions on Russia.
The existence of price cap would give them leverage to push down the price they pay to Russia.
The Russia-Ukraine war has had a far-reaching impact on the global energy system, disrupting supply and demand patterns and fracturing long-standing trading relationships.
It has pushed up energy prices for many consumers and businesses around the world, hurting households, industries and entire economies of several nations.
Why a price cap is being introduced
The G7, including the United States, as well as the whole of the European Union and Australia, are planning to implement the price cap on sea-borne exports of Russian oil on December 5.
The cap is intended to cut Russia’s oil revenues while keeping Russian crude on the market by denying insurance, maritime services and finance provided by the Western allies for tanker cargoes priced above a fixed dollar-per barrel cap.
A historical Russian Urals crude average of $63-64 a barrel could form an upper limit.
The cap is a concept promoted by the United States since the EU first laid out plans in May for an embargo on Russian oil to punish Moscow for its invasion of Ukraine.
Insurance companies and other firms needed to ship oil would only be able to deal with Russian crude if the oil is priced at or below the cap. Most of the insurers are located in the EU or the United Kingdom and could be required to participate in the cap. Without insurance, tanker owners may be reluctant to take on Russian oil and face obstacles in delivering it.
What will be the price cap
G7 and European Union diplomats have been discussing a price cap on Russian oil of between $65 and $70 a barrel, but an agreement has still not been reached.
Russian President Vladimir Putin has said Moscow will not supply oil and gas to any countries that join in imposing the price cap, which the Kremlin.
The price cap is expected to come into effect on December 5, same day when an EU ban on Russian crude kicks off, and ahead of the next meeting of the Organization of the Petroleum Exporting Countries and allies, known as OPEC+, on December 4.
However, the European Union governments remained split over what level to cap Russian oil prices at to curb Moscow’s ability to pay for its war in Ukraine without causing a global oil supply shock.
A higher price cap could make it attractive for Russia to continue to sell its oil, reducing the risk of a supply shortage in global oil markets.
Poland wants the cap to be set at $30, arguing that with Russian production costs that some estimate at $20 per barrel, the G7 proposal would allow Moscow too much profit.
India’s purchase of Russian crude
Oil refiners in India have snapped up nearly all grades of Russian crude, taking advantage of the discounts. In fact, India has pushed into a corner of the Russian oil market once dominated by China.
Six vessels hauling Russian crude known as ESPO were headed to refiners in the South Asian nation in August, according to traders and shipbrokers. That’s the highest number of cargoes purchased by India since the stream was introduced, and accounts almost one-fifth of available monthly shipments.
As the conflict has dragged on, the third-largest oil importer first ramped up purchases of the flagship Urals crude, which loads from the western part of Russia, and is now competing for ESPO, a distillate-rich grade that comes from the east and was typically favored by Chinese buyers.
Russia’s share of India’s oil imports surged to an all-time high of 23% from 19% the previous month while that of the Middle East declined to 56.4% from 59%, the data showed.
Iraq remained India’s top supplier while Russia overtook Saudi Arabia as the second biggest after a gap of a month.
How will price cap impact India
According to a Reuters report, some refiners in India are paying the equivalent to a discount of around $25 to $35 a barrel to international benchmark Brent crude for Russian Urals crude.
With Brent trading at around $86 a barrel on Friday, that would imply a price of $50-$60 a barrel of Urals, which is below the cap.
Indian refiners typically pay for crude to be delivered to them, including insurance and freight.
Even for delivered Urals crude, India is paying $15-$20 a barrel below Brent, one source said. That means even the delivered cargoes are about the same level as the price cap.
Hence, Indian refiners are already getting Russian oil at below or near price cap levels. So, as and when the price caps are imposed it is unlikely to have any negative impact on India’s oil imports.
Urals is trading to other buyers at a similar discount of $30-$35 to dated Brent, trading sources said. Oil produced by the sanctioned state oil firm Rosneft is at the lower end and non-Rosneft slightly higher.
According to a Reuters report, Indian refiners are wary of buying Russian crude beyond the December 5 date of the EU import ban and the proposed price cap.
Leading refiners Reliance Industries and state-controlled Bharat Petroleum are pulling back from placing orders, according to two sources familiar with the purchasing plans.
The lower volumes for December follow strong imports by India of Russian crude in recent months. Refinitiv estimates November arrivals at 1.0 million bpd, which would make Russia the top supplier for the month, ahead of Iraq’s 960,000 bpd.
‘India to see it as an opportunity’
India hopes to convert the current global oil challenges from the Ukraine crisis into an opportunity to secure affordable energy, oil minister Hardeep Singh Puri said, a day after the European Union failed to agree on a Russian oil price cap.
“At this time, the worry is not about from where we will get energy,” Puri said. “It is a global challenge but we have and we will convert this into an opportunity. And I don’t foresee any difficulty in procuring energy and securing at affordable prices.”
The West has exempted Russian oil supplies via pipelines to Hungary and China, and exports from Sakhalin-2 projects to Japan. “So the question arises that on whom this price cap will be imposed, if these three large exemptions are there,” Puri said, indicating that the mechanism is aimed at supplies to India.
Puri, however, said he was not concerned about disruption to oil supplies post-December 5, adding that India has been rapidly diversifying its crude sources and could buy more oil from the United States, Guyana and other nations in the coming years.
Even though India has benefited tremendously from Russian oil imports, in recent months the profits squeezed due to Moscow limiting discounts, tighter sanctions kicking in and refiners lifting more term supplies.
India is now turning to Africa and the Middle East instead of Russia due to higher freight rates.
To secure supplies, Indian Oil Corporation (IOC) in September signed its first 6-month oil import deals with Brazil’s Petrobras for 12 million barrels and Colombia’s Ecopetrol for 6 million barrels.
Bharat Petroleum Corporation (BPCL) has signed an initial deal with Petrobras as it seeks to diversify oil sources.
IOC is also looking for more short-term supplies, including a contract for US oil, according to sources quoted by Reuters. IOC already has an annual deal that provides an option to buy 18 million barrels of US oil. Of these, IOC has already bought about 12 million barrels so far this year, they said.
The sources also said that BPCL, which has already ramped up US oil purchases, is looking for more term contracts.
Moreover, with Canadian heavy crude’s discount to West Texas Intermediate crude on the Gulf Coast expanding to a record, Indian refiners have opportunistically increased purchases.
A total of 3.3 million barrels of Access Western Blend, a crude grade produced in the oil sands of Alberta, are scheduled to arrive in India next month after departing the US Gulf, according to Vortexa Ltd.
(With inputs from agencies)