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Ukraine crisis: Why is India buying Russian oil? Ukraine crisis: Russian oil turns to Asia
(3 months later)
Rising global oil prices are a concern for India's policymakersRising global oil prices are a concern for India's policymakers
There's been a significant increase in India's imports of Russian crude oil, according to the latest shipping data. Countries in Asia are turning to Russia for discounted oil as global energy prices remain high, and Western nations seek to scale down their reliance on Russian energy.
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. India has been increasingly buying up Russian crude, and the latest shipping data shows that China has also been buying more.
Where is India getting its oil? Where's the oil going?
India is the world's third-largest consumer of oil and over 80% of it is imported. Although exports to the European Union (EU) have fallen since Russia's invasion of Ukraine, the bloc is still buying a significant amount - over a million barrels of oil per day.
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. However, EU members states have said they'll ban all sea-borne imports from December (most Russian oil comes by sea rather than by pipeline).
But in March, imports began to rise. But India and China have recently become big buyers and now account for over half of all Russia's seaborne oil exports.
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. In March this year, combined oil imports by China and India from Russia overtook those from the 27 EU member states by volume.
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. India's purchases of Russian oil known as Urals (a crude blend typically exported to Europe) increased sharply earlier this year.
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. India's imports of another Russian crude blend called East Siberia Pacific Ocean (ESPO) have also seen a rise, shipping information shows.
Why is India buying Russian oil? China has been buying larger quantities of both Urals and ESPO since March. In early July, it was reported to have bought record amounts for the second month in a row.
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 Zhoushan crude oil terminal in China prepares to receive a tanker
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. In contrast, Japan has made clear it will phase out Russian oil imports, and South Korean imports of Russian crude have fallen.
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. Sri Lanka, grappling with a severe economic crisis, is taking advantage of these discounts, with three shipments of Russian oil delivered.
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". Myanmar's military regime recently said that they would also start importing from Russia.
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. Cheaper oil driving the flow to Asia
These two types of crude normally sell at a similar price. Following its invasion of Ukraine in February, Russia had fewer buyers for its Ural crude oil, with some foreign governments and companies deciding to shun Russian energy exports, and its price started to fall.
At one point earlier in the year, Russian crude was more than $30 a barrel cheaper than Brent crude [the global benchmark].
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. While the exact price of the sales to India is unknown, the discount for Russian crude has narrowed to around $20 per barrel.
India imports more than 80% of its oilIndia imports more than 80% of its oil
The price difference has continued since then. In July, India's imports of Russian oil fell slightly as the price was less attractive compared with crude from Saudi Arabia.
So "India is likely to purchase at least some of this [Russian] crude at a significant discount," says Matt Smith. Recently, Ukrainian Foreign Minister Dmytro Kuleba said "every barrel of Russian crude oil delivered to India has a good portion of Ukrainian blood in it".
What's the impact of financial sanctions? The Indian government has defended its purchases from Russia, saying it has to source oil from where it is cheapest.
The US government has acknowledged that it can't stop these purchases because there are no secondary sanctions on countries doing business with Russia.
It's also not clear if India or China will follow a plan by the G7 countries (UK, US, Canada, France, Germany, Italy and Japan) to cap the price of Russian oil in a bid to limit Moscow's earnings from energy exports.
The impact of 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 and imports are paid for in rupees.
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 buying oil? Russia was also reported to be asking for payments from India in the currency of the UAE, although the trading firms involved did not confirm the report.
India's oil imports from the US went up in February and March, but then fell in April and fell further in May. And China's state-owned oil enterprises are increasingly using the Chinese renminbi rather than the US dollar to finance oil purchases from abroad.
While India continues to buy a large amount from Middle Eastern countries, the most significant increase in imports is from Russia. Where else are Indian and China getting oil?
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." India's imports of crude oil from the US went up sharply at the end of 2021 and earlier this year year, but then fell before picking up slightly.
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. Although India's imports from Russia have grown, it also buys a large amount of oil from Middle Eastern countries, noticeably Iraq and Saudi Arabia.
China also continues to buy oil from the Middle East as well Angola and Brazil, although in July, Russia remained its top supplier for the third month in a row.
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