Manas Dasgupta
NEW DELHI, Mar 29: Amidst Ukraine’s criticism of India for buying Russian oil, Russian energy giant Rosneft on Wednesday announced a deal to substantially increase the oil sales to India as Moscow seeks buyers in the wake of tensions with the West over Ukraine war.
The Kremlin’s decision to deploy its military to Ukraine in February, last year, saw Russia’s share of the European market collapse as Kyiv’s allies levied sanctions on the Russian oil sector.
Rosneft said in a statement that its CEO Igor Sechin had travelled to India and brokered an agreement with the head of the Indian Oil Corporation. “Rosneft Oil Company and Indian Oil Company signed a term agreement to substantially increase oil supplies as well (as) diversify the grades to India,” Rosneft said in a statement.
Rosneft however did not specify the volumes stipulated in the agreement nor its value. The announcement came a day after Russian Deputy Prime Minister Alexander Novak said Russian oil sales to India had increased by more than twentyfold last year. Rosneft said representatives of the two oil companies also discussed the “possibilities of making payments in national currencies,” pointing to Russia’s efforts to de-dollarise its economy.
Russia, a major producer and key ally of the Organisation of Petroleum Exporting Countries (OPEC) oil cartel, cut crude production by 500,000 barrels per day this month in response to the Western sanctions. Rosneft earlier this month posted a sharp drop in annual profit in the wake of Western sanctions against Russia.
Russia in December last year was reported to have sold to India oil at prices even below the discounted price level. According to reports, Russia’s flagship Urals crude has been sold at deeper discounts following a European ban on Russian oil imports and India being a dominant buyer has bought crude at a price well below the $60 per barrel price cap agreed by the West.
The European Union ban on imports of Russia’s seaborne oil from December 5 has driven Moscow to seek alternative markets, mainly in Asia, for about 1 million barrels per day.
Also on December 5, the Group of Seven leading economies implemented a $60 price cap on Russian seaborne oil to try to limit Moscow’s ability to finance its war in Ukraine. Russia has said it will not abide by the cap even if it has to cut production.
The Western actions have left Russian producers in fierce competition with each other and with suppliers from Asia, Europe and West Asia, meaning their best hope of finding buyers is to lower prices. Since Russia began its invasion of Ukraine in February, India has become the main outlet for seaborne cargoes of Urals crude.
The discounts mean oil is in some cases being sold at below overall production cost including local levies, industry sources said. The pressure on producers has increased further at Russia’s western ports because a shortage of vessels suited to Russian winter weather has driven up freight costs, which can be borne by the seller depending on the terms of deals agreed.
Russian oil suppliers are trying to handle Urals oil transport to India themselves using their own vessels and shipping partners, which can reduce transport costs, traders said. But many oil producers still rely on trading firms, which means they have to share any profits they have.
India, the second-largest consumer of oil in Asia, is better located to buy Urals than China because of a shorter transport route, and its refineries are well-suited to processing Russian oil. In addition, New Delhi recognises ships and insurance cover provided by Russian entities, which are no longer recognised in Europe.
Urals supplies to India in November, last year, rose to at least 3.7 million tonnes and reached a record 53.2% of overall grade’s loadings via sea ports during the month and Russia emerged as biggest oil supplier to India replacing Iraq.