Transparent Trade: Shedding Light on the Reduced Russia Oil Discount and its Impact on India”
Russia-India Oil Deals: Shrinking Discounts and Opaque Delivery Charges Persist
The generous discounts on Russia crude oil that India has enjoyed since the Ukraine war have diminished. However, the shipping rates charged by Russia-arranged entities continue to remain opaque and higher than usual, according to sources. While Russia bills Indian refiners at a price just below the $60 per barrel cap imposed by the West, the delivery charges from Baltic and Black Sea ports to India range between $11 and $19 per barrel—twice the normal rate. These costs exceed those for comparable distances, such as a journey from the Persian Gulf to Rotterdam.
Following Russia’s invasion of Ukraine last year, European buyers and some Asian countries, including Japan, imposed sanctions on Russian oil. As a result, Russian Urals crude began trading at a discount to Brent crude. Although the discount on Russian Urals has narrowed from around $30 per barrel to approximately $4 per barrel, Indian refiners have become the largest buyers of Russian oil, as Chinese imports have reached their limit due to the electrification of vehicles and economic instability.
Indian refiners, such as Indian Oil Corporation (IOC), Hindustan Petroleum Corporation Ltd, Bharat Petroleum Corporation Ltd (BPCL), Mangalore Refinery and Petrochemicals Ltd, HPCL-Mittal Energy Ltd, Reliance Industries Ltd, and Nayara Energy Ltd, have been negotiating separate deals with Russia, leading to shrinking discounts. Experts suggest that if state-controlled entities, which account for about 60% of the 2 million barrels per day of Russian oil flowing into India, negotiated together, they could have secured larger discounts.
China’s saturated demand and Europe’s lack of seaborne crude purchases from Russia have positioned India as the sole destination with increasing appetite for Russian oil. However, in order to extract greater discounts, refiners would need to negotiate collectively. Currently, only IOC has entered into a term or fixed volume deal, while other refiners continue to purchase on a tender basis.
Russian oil sales to India have surpassed those to China, and Indian refiners buy crude oil on a delivered basis, placing the responsibility of shipping and insurance arrangements on Russia. While the invoiced price for oil is approximately $60 per barrel, the shipping and insurance rates are determined by quotes from three relatively unknown agencies, making them opaque and difficult to evaluate independently. The actual sale price of Urals crude is estimated to be around $70-75 per barrel, with a significant portion of the revenue going to these shadow agencies.
To comply with the G7’s $60 per barrel price cap on Russian oil since December 2022, Russia prices the oil in the invoice at $60 or less, while charging buyers for shipping and insurance based on quotes obtained from the three agencies. The Baltic Exchange, a London shipping industry clearinghouse, previously provided standard indicators for shipping costs, but since late 2022, Russian crude is no longer sold in Rotterdam and Augusta, and the Baltic Exchange has ceased listing certain indicators applicable to Russian cargoes. Additionally, tankers are booked on a time charter basis, further complicating the transparency of voyage costs.
The proportion of Russian oil-loaded ships insured in the EU, G7, or Norway has declined, with only 46.3% insured in May compared to 78% in February last year. The EU, G7, and Norway still provide tankers for shipping Russian oil, although their share has decreased. UAE-registered tankers account for 37%, and 12.3% come from China, including Hong Kong. The origin of the remaining 22% of tankers is unknown.
