US sanctions on Rosneft and Lukoil, Russia’s largest oil exporters, are having a milder-than-expected financial impact so far on Indian refiners. While international benchmark crude prices have slipped to pre-sanction levels, discounts on Russian barrels have widened enough to nearly financially offset volumes refiners expect to lose.
Indian state-owned and private refiners have stopped taking cargoes from the two sanctioned entities, instead seeking volumes from non-sanctioned suppliers. In recent tenders for January loadings, offers—mostly from traders—have been far lower than what the refiners sought. These tenders include an explicit requirement that the crude’s original source must not be sanctioned.
“By current trends, we may not be able to get more than a third of the Russian cargoes we usually take in a month,” said an industry executive. “But the volume loss will be offset by gains on discounts. Volume goes down by a third, while discounts increase by almost a third.”
Discounts on the Russian flagship grade Urals have widened two-and-a-half times to $5 per barrel to Brent for January loading, compared with $1.8-2 before the sanctions. Brent, after briefly rising above $65 a barrel, has now slipped back to the pre-sanctions level of $62.5.
As a result, the economic advantage from discounted Russian crude remains largely intact for Indian refiners, and the cost of switching to alternative grades hasn’t increased.
It was anticipated that Indian refiners’ crude procurement costs would rise as the US sanctions would curtail access to discounted Russian oil while increasing the cost of alternative supplies.
Buyers have turned cautious after the latest US measures on Rosneft and Lukoil, which together export about 3 million barrels per day (mbd) of Russia’s roughly 5 mbd shipments. Volumes for December loadings may be even lower than those for January, after Indian refiners turned more cautious and cut orders even from non-sanctioned sellers. Refiners are now again seeking maximum available non-sanctioned barrels for January.
Rosneft exports crude produced by several Russian entities, including its own fields. Executives expect much of the oil from non-Rosneft fields to continue reaching the global market through non-sanctioned traders. In addition, a well-supplied global crude market— helped by increased output from Opec as well as non-Opec producers—and hopes of US-brokered peace between Ukraine and Russia are keeping oil prices contained.
For Indian refiners, reliance on Russian oil is set to fall sharply after this month’s accelerated imports ahead of the November 21 expiry of the sanctions wind-down period. November loadings have halved, forcing refiners to plug the gap with increased sourcing from the Middle East and the Americas. December loadings are also going to be lower.
Shipments from Russia typically take about a month to reach India, compared to roughly a week for Middle Eastern supplies. Cargoes loaded in Russia in January will arrive only in February, so refiners are planning their February procurement from the Middle East and elsewhere, based on anticipated Russian shortfall.
Reliance Industries has said its export-only unit in Jamnagar has stopped processing Russian crude, ensuring unfettered access to the lucrative European market. Reliance is the EU’s second-largest diesel supplier.
EU imports are permitted only when a refinery can physically segregate Russian crude in its operations and certify that the product shipped to Europe comes from processing lines that use only non-Russian oil. The US is intensifying efforts to end the war by presenting Ukraine with a peace plan and simultaneously squeezing Moscow’s revenues by sanctioning its top oil exporters. Meanwhile, India and the US have been negotiating a broader trade package for months, with energy emerging as a key bargaining lever.
