India buying expensive oil as 'cheap' contracted Russian crude faces tighter US sanctions

India’s state-run oil refiners are reportedly avoiding contracted Russian crude supply and instead opting to purchase more expensive oil due to stricter US sanctions.

Even though Russia remains the largest supplier to India, there are indications that refiners are turning to other producers including Saudi Arabia and exploring contracted crude from the Middle East and West Africa. However, these deals are expected to be costlier compared to Russian oil, reported Bloomberg quoting sources familiar with the matter.

The largest state-owned refiner, Indian Oil Corp. is expected to reduce the volume of crude received under term supply agreements. Bharat Petroleum Corp. and Hindustan Petroleum Corp. have also decided against firm commitments to take contracted oil in the next financial year, six people familiar with the matter told Bloomberg.

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The three refiners had been engaged in discussions with Russia’s Rosneft PJSC to secure approximately 500,000 barrels per day, which is equivalent to a third of India’s daily imports. However, the lukewarm response to a proposed contract clause addressing supply disruptions has contributed to the cautious approach of Indian refiners.

While Indian Oil Corp. has an existing long-term agreement with Rosneft, contracted supply would have represented a first for Hindustan Petroleum Corp. and Bharat Petroleum Corp.

India, the world’s third-largest oil importer and consumer has emerged as the top buyer of discounted Russian seaborne oil after Western nations stopped buying from Moscow following its invasion of Ukraine.

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According to Vortexa, an energy intelligence firm, India imported just 36,255 bpd of crude oil from Russia in December 2021 as compared to 1.05 million bpd from Iraq and 952,625 bpd from Saudi Arabia.

While Russia continues to hold its position as the primary supplier to India, indications suggest that Indian refiners are increasingly diversifying their sources. This month, imports from Saudi Arabia have surged by 22 per cent compared to January, with Reliance Industries Ltd., the largest private refiner, recording its highest volume since May 2020, as reported by Kpler.

The US in December imposed sanctions on ships and vessel operators carrying Russian oil sold above the USD 60-a-barrel cap set by the Group of Seven nations.