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Ukraine crisis: Why India is buying more Russian oil Ukraine crisis: Why is India buying Russian oil?
(about 1 month later)
Rising global oil prices are a concern for India's policymakersRising global oil prices are a concern for India's policymakers
As calls continue for India to keep its distance from Moscow after the invasion of Ukraine, its oil purchases from Russia have more than doubled from last year. There's been a significant increase in India's imports of Russian crude oil, according to the latest shipping data.
The Indian government has defended the move to buy Russian oil, and said what it buys from Russia in a month is less than what Europe buys from Russia in an afternoon. The US has said India shouldn't go "too far" with its oil purchases from Russia, but India has defended its continued buying of Russian crude.
Why is India buying more Russian oil? Where is India getting its oil?
India is the world's third-largest consumer of oil and over 80% of it is imported.
Historically, Russia has not been a major supplier to India. In January and February this year, India did not import any crude from Russia at all.
But in March, imports began to rise.
According to tanker tracking data in May, Russian oil imports are now the second-largest source for India after imports from Iraq, according to data analytics firm Kpler.
Indian contracts for Urals crude - the type most commonly exported by Russia - for March, April, May and June and projections for deliveries in July and August (around 66.5 million barrels in all) - amounts to more than the quantity purchased during all of 2021, according to Kpler.
Last year, India's top three suppliers were in the Middle East, followed by the US and Nigeria. Only around 2% of total oil imports (12 million barrels of Urals crude) came from Russia, according to Kpler.
Why is India buying Russian oil?
India has taken advantage of discounted prices to ramp up oil imports from Russia at a time when global energy prices have been rising.India has taken advantage of discounted prices to ramp up oil imports from Russia at a time when global energy prices have been rising.
The US has said that although these oil imports do not violate sanctions, "support for Russia...is support for an invasion that obviously is having a devastating impact". Following its invasion of Ukraine, there were fewer buyers for Russia's Ural crude oil, with some foreign governments and companies deciding to shun Russian energy exports, and its price has fallen.
UK Foreign Secretary Liz Truss also urged India to reduce its dependence on Russia during a trip to Delhi in March, which took place at the same time as a visit by the Russian foreign minister, Sergei Lavrov. The US has urged India not to buy too much Russian oil, although it's acknowledged that it can't stop these purchases because there are no secondary sanctions on countries doing business with Russia.
Mr Lavrov told his Indian counterparts that Russia was willing to discuss any goods that India wanted to buy and urged that payments be made in roubles. US State Department official Amos Hochstein has said that he told Indian officials not "to look like you're taking advantage of the pain that is being felt in European households and in the US".
Where does India get its oil? While the exact price of the sales to India is unknown, "the discount of Urals to Brent crude [the global benchmark] remains at around $30 per barrel", says Matt Smith, an analyst at Kpler.
After the US and China, India is the world's third-largest consumer of oil, over 80% of which is imported.
But in 2021, only around 2% of its total oil imports (12 million barrels of Urals crude) came from Russia, according to Kpler, a commodities research group.
By far the largest supplies last year came from oil producers in the Middle East, with significant quantities also from the US and Nigeria.
In January and February, India didn't import any oil from Russia.
But so far, the amount of Urals oil contracts made for India covering March, April, May and June - around 26 million barrels - is higher than the quantity purchased during the whole of 2021, according to Kpler.
What's the deal India is getting?
Following its invasion of Ukraine, there are now fewer buyers for Russia's Ural crude oil, with some foreign governments and companies deciding to shun Russian energy exports, and its price has fallen.
While the exact price of the sales made to India is unknown, "the discount of Urals to Brent crude [the global benchmark] remains at around $30 per barrel", says Matt Smith, an analyst at Kpler.
These two types of crude normally sell at a similar price.These two types of crude normally sell at a similar price.
Can the world manage without Russian oil and gas?Can the world manage without Russian oil and gas?
At one point in March, as the price of Urals crude continued to drop, the difference between them reached an all-time record, he adds.At one point in March, as the price of Urals crude continued to drop, the difference between them reached an all-time record, he adds.
So "India is likely to purchase at least some of this [Russian] crude at a significant discount," he says.
India imports more than 80% of its oilIndia imports more than 80% of its oil
The price difference has continued since then.
So "India is likely to purchase at least some of this [Russian] crude at a significant discount," says Matt Smith.
What's the impact of financial sanctions?What's the impact of financial sanctions?
Although the price is attractive, India's big refining companies are facing a challenge trying to finance these purchases, because of sanctions on Russian banks.Although the price is attractive, India's big refining companies are facing a challenge trying to finance these purchases, because of sanctions on Russian banks.
It's a problem facing trade in both directions.It's a problem facing trade in both directions.
One of the options India is looking at is a transaction system based on local currencies, where Indian exporters to Russia get paid in roubles instead of dollars or euros.One of the options India is looking at is a transaction system based on local currencies, where Indian exporters to Russia get paid in roubles instead of dollars or euros.
The US has made clear its reservations with this, saying it could "prop up the rouble or undermine the dollar-based financial system".The US has made clear its reservations with this, saying it could "prop up the rouble or undermine the dollar-based financial system".
Where else is India looking to buy oil? Where else is India buying oil?
India's oil imports from the US have gone up significantly since February, according to analysts at Refinitiv. India's oil imports from the US went up in February and March, but then fell in April and fell further in May.
However, market analysts say this may not be sustainable in the future as the US seeks to use its domestic oil production to replace supplies from Russia after its invasion of Ukraine. While India continues to buy a large amount from Middle Eastern countries, the most significant increase in imports is from Russia.
There are also suggestions that trade with Iran could resume under a barter mechanism which Indian oil refiners could use to buy its oil. This arrangement stopped three years ago, when the US re-imposed sanctions on Iran. Foreign Minister S Jaishankar has said that because of sanctions on other major producers such as Iran and Venezuela, Western countries had "squeezed every other source of oil we have."
But this is unlikely to resume without a wider deal reached in international negotiations with Iran over its nuclear programme. India has also denied recent reports that Russian crude imported by India was being shipped on as refined products to other countries, including the US.
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