Russia’s Oil Discount to India Shrinks to $4, Transparency Concerns Remain Over Delivery Charges
The steep discounts on crude oil from Russia that India has been enjoying since the Ukraine war are dwindling, but concerns persist regarding the transparency and higher-than-normal shipping rates charged by Russia-arranged entities, according to sources. While Russia bills Indian refiners at a price slightly lower than the West-imposed cap of $60 per barrel, the delivery charges from the Baltic and Black Sea to the west coast of India range from $11 to $19 per barrel—double the usual rates—raising questions about transparency and fairness.
The steep discounts on crude oil from Russia that India has been enjoying since the Ukraine war are dwindling, but concerns persist regarding the transparency and higher-than-normal shipping rates charged by Russia-arranged entities, according to sources. While Russia bills Indian refiners at a price slightly lower than the West-imposed cap of $60 per barrel, the delivery charges from the Baltic and Black Sea to the west coast of India range from $11 to $19 per barrel—double the usual rates—raising questions about transparency and fairness.
Following Moscow’s invasion of Ukraine in February of the previous year, Russian oil faced sanctions and was shunned by European buyers and some Asian nations, including Japan. As a result, Russian Urals crude was traded at a discount to the global benchmark, Brent crude. However, the discount on Russian Urals grade has gradually narrowed from around $30 per barrel in the middle of last year to approximately $4 per barrel, sources revealed.
With Chinese imports reaching their limits due to a surge in electric vehicles and economic challenges, Indian refiners have become the largest buyers of Russian oil. Their purchases have surged from less than 2% of total imports before the Ukraine war to 44% as they took advantage of the discounted prices. However, these discounts have been shrinking as each refiner negotiates separate deals with Russia, including government-controlled entities like Indian Oil Corporation (IOC), Hindustan Petroleum Corporation Ltd, Bharat Petroleum Corporation Ltd (BPCL), Mangalore Refinery and Petrochemicals Ltd, and HPCL-Mittal Energy Ltd, as well as private refiners Reliance Industries Ltd and Nayara Energy Ltd.
Sources suggest that if state-controlled units, which account for roughly 60% of the 2 million barrels per day of Russian oil flowing into India, had negotiated together, even larger discounts could have been achieved. “Chinese demand has maxed out, and Europe is not buying any seaborne crude from Russia. So, India remains the only destination with increasing appetite. And if they (refiners) negotiated together, bigger discounts could have been extracted,” a source commented.
While the invoicing for oil remains at or slightly below $60 per barrel, the shipping and insurance rates billed are based on quotes received from three relatively unknown agencies. These rates cannot be independently evaluated, resulting in a lack of transparency. The actual sale price of Urals crude is estimated to be around $70-75 per barrel, diverting a significant portion of Russian oil revenues to these three shadow agencies.
To comply with the $60 per barrel price cap imposed by the G7, Russia prices oil in the invoice at $60 or less, but charges buyers for shipping and insurance based on quotes from the aforementioned agencies. The lack of transparency is further compounded by changes in shipping benchmarks and the chartering of additional tankers outside of traditional channels.
As the proportion of Russian oil-loaded ships insured by EU, G7, or Norway has declined, concerns have risen regarding the transparency of costs and information. It is worth noting that the origin of 22% of oil tankers shipping Russian oil is unknown.
The evolving dynamics surrounding Russia’s oil discounts to India and the opacity of delivery charges highlight the need for greater transparency and fair practices in the oil trade. Both parties should strive to ensure a mutually beneficial and transparent framework that upholds the principles of fairness, accountability, and market competitiveness.
Sources By Agencies
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