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For more than a year, India – the world’s third largest consumer of crude oil with an import dependence of more than 85% – has been in love with Russian oil. The case started shortly after February 2022 Invasion of Ukraineafter Russia began to offer large discounts to willing buyers, such as Western countries are starting to give up their oil.
Before the war, Russia was a peripheral player in the Indian oil trade, which was dominated by West Asian suppliers such as Iraq, Saudi Arabia, and the United Arab Emirates. In just over a year, the discounts ensured that Russia became India’s largest exporter of crude oil.
It seems that the Russian cuts were It has eroded significantly in recent weeks. Rising prices for key Russian Urals products could lead to payment problems for Indian refiners – and test the strength of the energy trading relationship.
Indian refineries saved at least 17 billion foreign exchange in the 14 months ending May 2023 by ramping up purchases of discounted Russian crude after the war broke out in Ukraine. (Wikimedia Commons/analog)
However, this is the story of the biggest turnaround in the Indian oil trade in recent history.
Figure 1: Growth of Russian oil imports
Oil imports from Russia and others.
Data from the Directorate General of Trade Intelligence and Statistics (DGCI&S) shows that India’s oil imports from Russia have grown more than 10 times since April 2022. DGCI&S releases trade data late, and data through May is available so far.
Growth has been flat especially since December 2022, after the Group of Seven countries imposed a $60 per barrel price cap on seaborne Russian crude earlier that month.
Figure 2: Russia won, others lost
How have market shares changed?
A comparison of the market shares (by volume) of India’s top 10 crude oil suppliers in the 14 months ending April 2023 and their shares in the 2021-22 financial year shows how Russia has gained at the expense of other suppliers.
Russia’s market share rose to 24.2% in the 14-month period, up from 2% in FY22. Most other major suppliers saw their market shares decline. Iraq, Nigeria and the United States witnessed the most significant declines. (See the difference in the two column sizes for each of these countries.)
Chart 3: Russia rose higher as OPEC fell
OPEC and Russia: How Stocks Flipped.
The cumulative market share of members of the Organization of the Petroleum Exporting Countries (OPEC), the group of major oil producers that has dominated India’s basket of oil imports, fell dramatically as the graph of Russian oil imports rose sharply.
The share of OPEC in India’s oil imports has fallen by almost half – from 75.3% in May 2022 to 40.3% in May 2023. Among the main suppliers of India, Iraq, Saudi Arabia, the United Arab Emirates, Kuwait, Nigeria and Angola are members of OPEC.
During the period from April 2022 to May 2023, Russia’s share in India’s oil imports increased from 6% to 40.4% – and, according to many analysts and industry observers, it appears to have peaked.
Figure 4: Actual discount ambiguity
Russia and others: how prices have moved.
While Indian refiners buy cheap from Russia, the actual cuts to oil remain shrouded in mystery, thanks to opaque pricing of Russian oil shipments. Indian refiners buy on a ‘delivery’ basis, which means that the price of shipments includes the cost of freight and insurance, apart from the cost of the oil itself.
The best available marker for cuts is a comparison of the average delivery price of Russian crude oil with the average price of imported oil from all other suppliers. Western sanctions are said to have significantly raised shipping and insurance costs for Russian oil. This indicates that discounts may be higher on the price of oil, and lower on the price of freight (including freight and insurance costs).
Figure 5: Top and bottom discount levels
Trade data analysis shows that discoun
Discount scheme in Russia over time.
R levels of Russian oil initially rose (in May 2022) and contracted significantly in June, before rising again and stabilizing over the next four months. After two months of contraction, to December 2022.
Then came the G7 price cap, and discount levels rose over the next four months, before falling again. According to industry sources, discounts have eroded significantly over the past few weeks, and major Russian crude oil has breached the G7 price cap. If this situation continues, oil from Russia could become much less attractive to Indian refiners in the coming months.
Figure 6: Russia’s share of India’s oil bill
Russia’s share versus that of others in India’s oil import bill.
Trade data shows that Indian refiners saved at least $7.17 billion in foreign exchange in the 14 months ending May 2023 by ramping up purchases of discounted Russian oil. India’s oil imports from April 2022 to May 2023 amounted to $186.45 billion; Had Indian refiners paid for Russian oil the average price they have paid for crude from all other suppliers combined, the oil import bill would have been $193.62 billion.
India’s imports of Russian oil amounted to about $40 billion in the 14-month period. In April 2022, the Russian invoice amounted to $866.40 million. In May 2023, it increased to $4.59 billion.
Figure 7: Russia vs. the Arab World and the United States
The oil differential of other major suppliers versus Russian oil.
The difference in the price of Russian crude versus other major suppliers shows that Russian oil was delivered to India at a significant discount to oil from Saudi Arabia and the UAE for most months.
On the other hand, the discount on Iraqi oil was the lowest in most months. In fact, the average Iraqi oil price was lower than the Russian oil price in two months, indicating that Iraq tried to compete with discounted Russian barrels by offering concessions. Amid the recent downturn in Russian discounts, Indian public sector refiners are in talks with Iraq for more purchases on friendlier payment terms.
The price of US crude oil was also lower than that of Russian oil for two months, although the spread for Russian oil was not consistently low in other months during this period.
Graphics source: analysis based on data from the Directorate General of Commercial Intelligence and Statistics (DGCI&S)
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