Russia The West is offering huge discounts on its crude to seek more buyers amid sanctions. The discount comes at a time when global crude oil prices are hovering higher and economies globally are not affected by supply chain disruptions caused by the Covid-19 pandemic and subsequent Russian invasion of Ukraine. what’s the discount here Russian crude oil Means for India:
Overall, how much crude oil does India import from Russia?
India imports more than 80 percent of its crude oil requirement. The country imported 193.5 million tonnes of crude oil in the current financial year till February at a cost of $105.8 billion. The total consumption of petroleum products in the country during this period stood at 183.3 million tonnes. Crude oil in the country mainly comes from the Middle East and America.
The country bought only 12 million barrels of oil from Russia in the whole year 2021, which is only 2 percent of its total imports. India’s own domestic production is much more than that.
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How much is the Russian exemption and will India benefit?
Russia is offering discounts of up to $35 a barrel. If India increases the supply of crude oil from Russia, it may help in arresting the rise in domestic oil prices. In a meeting with British Foreign Secretary Elizabeth Truss, External Affairs Minister S Jaishankar said on Thursday, “When oil prices rise, it is natural for countries to look for good deals for their people.”
He added that “I am pretty sure that if we wait 2-3 months and look at the big buyers of Russian gas and oil, I suspect that the list will not be any different than before and we will not be in the top-10.” In.”
While offering a discount, Russia also wants India to buy 15 million barrels of oil as an initial deal. India imported no oil from Russia in January and February, but the March and April contracts have already touched six million barrels for the Ural grade oil, according to data compiled by commodity research group Kepler.
Cheap crude oil imports on domestic economy
To keep domestic petroleum prices under control, India will need lower crude oil prices, which have already gone up to Rs 100 a liter in Delhi and even higher in some other states. The lower rate can keep inflation under check as costly petroleum affects the prices of other commodities and hence, there is room for RBI not to raise interest rates.
Retail inflation rose to an eight-month high of 6.07 per cent in February, well outside the Reserve Bank of India’s (RBI) target levels. RBI may resort to raising rates to bring inflation within the target range of 4-6 per cent.
Global crude oil prices scenario
Global oil prices have been at higher levels ever since Russia invaded Ukraine and halted global oil supplies. Currently, Brent crude is at $108.32 per barrel, while WTI is at 103.62 per barrel.
After Russian President Vladimir Putin approved a special military operation in Ukraine’s Donbass region on February 24, Brent crude oil prices hit US$100 a barrel for the first time since 2014. In the following days, US’ West Texas Intermediate crude futures also skyrocketed. $130.50 a barrel, the highest since July 2008, before retreating. Brent also hit a high of $139.13, which is also the highest level since July 2008.
Rupee-Ruble Trading Mechanism
India and Russia are in talks on rupee-ruble trade, as the West has imposed sanctions on Russia for attacking Ukraine. Russia has offered to pay using Russia’s messaging system SPFS. The deal hasn’t been finalized yet.
Under the mechanism, Indian exporters will be paid in local currency for their exports to Russia instead of dollars or euros, standard international currencies.
India spent 105.8 billion dollars on crude oil imports from various countries in the current financial year till February. Rupee-Ruble trade can help India save foreign exchange reserves to meet other needs and financial stability.
The mechanism is expected to be finalized during the visit of Russian Foreign Minister Sergei Lavrov to India. “Welcoming the Foreign Minister of the Russian Federation, Sergei Lavrov, on his arrival in New Delhi for an official visit,” Foreign Ministry Arindam Bagchi said in a tweet on Thursday.
Russian President Vladimir Putin said on Thursday that he has signed a decree stipulating that foreign buyers will have to pay in rubles for Russian gas from April 1 and that contracts will be suspended if these payments are not made.
Indian refining companies
Apart from the benefits, there are also concerns about cheap import of crude oil for Indian refinery companies. The country’s refining firms are facing the challenge of funding these concessional purchases.
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