New US Sanctions Threaten Russian Oil Deliveries to India, Industry Sources Warn

New US sanctions on Moscow threaten to reduce Russian oil deliveries to India, the largest consumer of Russian seaborne crude, and complicate attempts by Indian state refiners to obtain yearly supply agreements, according to industrial sources.
A ship carrying Russian Oil deliveries to India

On Friday, US announced over 500 new sanctions on Russia in response to the death of opposition leader Alexei Navalny and to commemorate the second anniversary of Moscow’s invasion of Ukraine.

The sanctions hit 14 crude oil ships connected to Sovcomflot, the largest tanker firm in Russia, and Washington, which has accused Sovcomflot of breaking the G7’s price ceiling on Russian oil.

According to sources, Indian refiners are worried that the most recent sanctions may make it more difficult to get vessels for Russian oil and may even result in higher freight costs. This might reduce the discount for the oil, which is purchased on a deliverable basis from traders and Russian businesses.

To further reduce the possibility of more sanctions, Moscow could also need to force even greater quantities via dealers, which would increase uncertainty, according to industry sources who wished to remain anonymous due to the sensitive dynamics of the current scenario.

Russian Oil and Indian import

Prior to 2022, India was a rare customer of Russian oil because of the high cost of freight. However, once Europe restricted Russian oil imports, refiners in the third-largest oil-importing country in the world became major purchasers, taking advantage of cheaper pricing.

In 2023, Russia became India’s principal oil supplier. The South Asian country purchased almost 1.66 million barrels of Russian oil per day in 2023, up from an average of 652,000 barrels per day in 2022, through term arrangements and spot market purchases.

India's crud mix and Russian Oil : Price Play-Russia replace Iraq as top oil supplier to India in 2023 (image credit Reuters)

The Russian major Rosneft and Indian state refiners; Indian Oil Corp (IOC.NS), Bharat Petroleum Corp (BPCL) (BPCL.NS), and Hindustan Petroleum Corp (HPCL) (HPCL.NS) are in talks to secure an annual deal for a combined volume of up to 400,000 bpd of Russian oil, mainly Urals, according to sources.

According to sources, Russia’s discounts and payment conditions will determine the ultimate quantities under the planned term arrangements.

According to two of the individuals, Rosneft has proposed a $3–$3.50 per barrel discount to Dubai pricing, which is more expensive than top refiner Indian Oil’s present agreement with Rosneft, which expires on March 31. Indian Oil is currently receiving a $8–$9 cost and freight discount to Dubai rates.

Given the uncertainty created by the sanctions, refiners view the proposed discount as narrow, according to sources.

Due to payment difficulties, Indian state refiners stated that they are not looking to purchase Sokol grade crude under the terms of the proposed agreement.

According to a government source in India, the country would only keep purchasing Russian oil if it was sold in non-sanctioned vessels and at a price below the ceiling.

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