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Ukraine crisis: Who is buying Russian oil and gas? Ukraine crisis: Who is buying Russian oil and gas?
(2 months later)
A crude oil tanker at a port in China's Shandong provinceA crude oil tanker at a port in China's Shandong province
India and China have become the largest buyers of Russian oil as Western nations restrict purchases and impose sanctions. India's oil purchases from Russia have risen sharply, despite efforts by Ukraine and its allies to persuade countries around the world to distance themselves from Russia.
A plan by the major G7 economies - backed by the EU and Australia - to cap the price at which Russian oil is bought has created uncertainty in global markets. Indian Prime Minister Narendra Modi met Ukrainian President Volodymyr Zelensky at the recent G7 summit in Japan, but there was little detail of what was discussed.
And as major oil-producing nations seek to maintain global prices by controlling output, Russia has offered its oil at a discount to willing buyers in Asia. Western nations have cut Russian oil imports, and want to limit the amount of revenue Moscow earns from selling oil elsewhere.
How much Russian oil is going to Asia?How much Russian oil is going to Asia?
India's imports of Russian oil have risen from a very low base at the start of the year reaching a peak in June and July, and largely maintaining these levels through to November. India's imports of Russian oil rose from a very low base at the start of 2022, increasing significantly throughout that year.
China's purchases of Russian oil have fluctuated this year, falling in February at the start of Russia's invasion of Ukraine, but then rising significantly in the following months. Russian oil now accounts for nearly 20% of India's annual crude imports, up from just 2% in 2021, according to Indian state-controlled lender Bank of Baroda.
Russia has been selling oil at a discounted rate since March this year after the Ukraine invasion. India's purchases of seaborne crude from Russia have surpassed those by China.
In March, combined oil imports by China and India from Russia overtook those from the 27 EU member states. From late November, there appears to have been a renewed surge in oil purchases by India. But China also gets nearly 800,000 barrels per day via a pipeline from Russia (in addition to imports by sea), although this is currently believed to be at or near full capacity.
"It is likely a sign that loadings have pivoted away from heading to EU 27 countries and are heading to India instead," says Matt Smith, an oil analyst at Kpler. India started buying up Urals crude selling at a discount after the invasion of Ukraine last February.
Experts suggest that if oil supplies continue at the same levels in December, Russia could become India's largest single supplier. But in recent months, its oil refiners have also shown increasing interest in Russia's ESPO blend (East-Siberia Pacific Ocean).
Other countries have also taken advantage of discounted Russian crude - for example Sri Lanka, which has been grappling with a severe economic crisis. China's seaborne imports of Russian oil did increase in 2022, but then fell back before increasing again in the latter part of the year and early this year.
Pakistan has also been negotiating with Russia to purchase discounted oil, although no deal has yet been struck. Other countries have also taken advantage of discounted Russian crude.
Turkey has bought significantly more, and so has Bulgaria, which has an exemption from the EU ban on Russian oil to allow it to continue to import it by sea.
Pakistan has also struck a deal with Russia to purchase discounted oil.
But these do not match the quantities imported by India and China.
Cheaper oil is driving the flow to AsiaCheaper oil is driving the flow to Asia
Following its invasion of Ukraine, Russia had fewer buyers for its Ural crude oil, with some foreign governments and companies deciding to shun its energy exports, and its price started to fall. Following its invasion of Ukraine, Russia had fewer buyers, as some foreign governments and companies decided to shun its energy exports.
At one point earlier this year, Russian Urals crude was more than $30 a barrel cheaper than Brent crude (the global benchmark). At one point last year, Russian Urals crude was more than $30 a barrel cheaper than Brent crude (the global benchmark).
The discount fell to $20 a barrel cheaper in September, but increased again reaching a discount of $33 a barrel compared with Brent crude in November. What are the sanctions on Russia?
Can the world manage without Russian oil and gas? In December 2022, G7 and EU leaders introduced a price cap plan aimed at limiting the revenue Russia earns from its oil exports, by trying to keep it below $60 a barrel.
The Indian government has defended its purchases from Russia, saying it has to source oil from where it is cheapest. The EU also stopped imports of Russian oil by sea, and banned the import of refined oil products from Russia.
Russia's oil exports in April have gone up by volume compared with a year ago, but its revenues have fallen by 27%, according to estimates by the International Energy Agency.
Rising global oil prices are a concern for India's policymakersRising global oil prices are a concern for India's policymakers
The US government had been critical of these purchases, although it's now made clear that it accepts that India can continue to buy discounted Russian oil. After the invasion of Ukraine, the US voiced its unhappiness about India buying up Russian oil, although it has made clear that it accepts that India can source crude from Russia.
The EU has stopped imports of Russian oil by sea completely in response to the invasion of Ukraine. There have also been concerns that refined fuels made from Russian oil are being sold on to the US and EU. There's been a significant increase in EU imports of diesel and jet fuel from India.
With the G7 price cap plan - to keep Russian exports at or below $60 (€57; £48) a barrel - now in force, Matt Smith of Kpler says "lax enforcement of the price cap may rule it ineffective". The Indian government has defended its continuing purchases of crude from Russia, saying it has to source oil from where it is cheapest.
But experts also point out that a total ban on Russian oil could have led to further market instability and possible oil price rises (from which Moscow could benefit). India's refineries have faced a challenge trying to finance these purchases because sanctions on Russian banks are affecting payment transactions.
It's not yet clear what impact the price cap might have on countries like India and China that are already buying Russian oil at a discount. Currently, Indian refiners are continuing to use dollars to buy Russian oil, but have been looking for alternative ways to pay.
Moscow has said will stop selling to countries that join the G7 move to impose price caps. China's state-owned oil enterprises are increasingly using the Chinese renminbi, rather than the dollar, to finance oil purchases.
But Maria Shagina, a research fellow at International Institute for Strategic Studies, says that diverting oil from the EU to Asia would be "more expensive, time-consuming and cumbersome" for Russia.
What's the impact of sanctions against Russia?
Although the price of Russian crude oil is attractive, India's refineries have faced a challenge trying to finance purchases, because sanctions on Russian banks are affecting payment transactions.
One of the options India considered was a system based on local currencies, where Indian exporters to Russia get paid in roubles instead of US dollars or euros and imports are paid for in rupees. That hasn't worked out.
However, China's state-owned oil enterprises are increasingly using the Chinese renminbi rather than the dollar to finance oil purchases.
How much Russian gas goes to Asia?How much Russian gas goes to Asia?
Nearly 50% of India's total gas requirements come from abroad - but it's mostly from the Gulf States with very little from Russia. China imports most of its gas via pipeline from Central Asia - Turkmenistan is currently the largest supplier.
"Deliveries of Russian LNG [liquefied natural gas] to India are rare" says Antonio Peciccia, a commodity industry expert with Argus media. "We believe five cargoes so far this year, down from seven a year earlier." But a new pipeline, known as Power of Siberia, is due to be completed later this decade, and could make Russia China's biggest supplier of gas. Some reports say the two countries are close to agreeing to start construction next year.
China imports most of its gas via pipeline from Central Asia. Currently, Turkmenistan is the largest supplier. And China has signed new deals to transport Russian LNG (liquified natural gas) by sea via the Arctic. There was a noticeable increase in 2022 in Chinese LNG imports from Russia, taking them to record levels at one point.
But once a new pipeline, known as Power of Siberia, is completed later this decade, Russia may well take over as China's biggest supplier of gas. Nearly 50% of India's total gas requirements come from abroad, but very little is from Russia and most comes from the Gulf states.
And there's been a noticeable increase this year in LNG imports from Russia, although most of China's LNG still comes from other countries.
China has also signed new deals to transport Russian LNG by sea via the Arctic.
With additional reporting from Wanyuan Song
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