An oil refinery in India | Bloomberg
Reliance Industries, the Indian largest private oil refiner, has reportedly stopped buying Russian crude oil after the US Trump administration decided to sanction Russia's two largest oil companies, Rosneft and Lukoil.
Over the past two or three years, India’s industry has become a major buyer of Russian crude oil.
Data from international commodity data analysis agency Kpler shows that in September this year, Reliance Industries purchased approximately 629.59 million barrels of Russian crude oil from these two Russian energy giants per day, while India's total crude oil imports for the month were 1.6 million barrels per day.
During the same period last year, Reliance Industries purchased about 428,000 barrels of Russian crude oil per day.
Before the outbreak of the Russo-Ukrainian war, India's crude oil imports from Russia accounted for less than 3% of its total crude oil imports, but now it accounts for one-third of India's crude oil imports.
India quickly increased its purchases of Russian crude oil because Russian oil exports had to significantly reduce prices to find customers after being jointly sanctioned by the United States and Europe.
On October 22, the U.S. Treasury announced sanctions on two of Russia’s largest oil companies, accusing them of funding Moscow’s war machinery, while Moscow failed to make serious promises to end the war in Ukraine.
U.S. officials said the sanctions aimed at “weakening” the Kremlin’s ability to fund its war, and hinted that more measures could be introduced.
The issue of India's purchase of Russian crude oil has always been a sticking point in India-US trade relations. Not long ago, the U.S. government announced an additional tariff of up to 50% on Indian exports to the United States.
As state-owned and private refineries are expected to stop buying Russian crude oil – a long-standing requirement by U.S. President Donald Trump – India’s chances of a reciprocal trade deal with the U.S. are increasing.
Pancage Srivastava, senior vice president for commodity oil markets at Rystad Energy, said that if India believes the industry really stops buying Russian crude oil, given that Russian crude oil accounts for more than half of its crude oil purchases, “it will have a negative impact on its profitability and profitability.”
But he also pointed out that it is not difficult for India to obtain "similar crude oil" and can be purchased from places such as West Africa, Brazil or Guyana, but because India has long-term contracts with suppliers such as Rosneft, it is unlikely to buy crude oil at the same low price.
According to Reuters, in December last year, India's Reliance Industries signed an agreement to import 12 billion to 13 billion US dollars worth of crude oil from Russian oil companies every year for 10 years. Based on this calculation, the daily import volume is about 500,000 barrels.
Since the outbreak of the Russia-Ukraine War in February 2022, cheap oil from Russia has helped Indian companies make excess profits
Vanda Harrie, of Vanda Insights, said Indian refiners purchased Russian oil as an “opportunistic procurement” because Russian oil prices had greater discounts compared to similar crude.
According to data from the Energy and Clean Air Research Center in Helsinki, India purchased 38% of Russian crude oil exports in September, after just 47% in China.
This also means that under the joint sanctions of the United States and the West, it has been difficult for Russian crude oil exports to find brave buyers outside India and China. If these two major buyers reduce or suspend imports of Russian crude oil, the war finances of Moscow leaders will be greatly affected.
Energy industry analyst Fandana Hari said Indian refineries could easily switch to sourcing crude oil from other sources, but at the expense of "pressure on refining margins."
Kpler’s senior oil analysts also said the Indian refinery giant may face some short-term problems in its search for a replacement for crude oil, and considering the huge amount of procurement agreements between India and Russian oil companies, we expect the industry to encounter some short-term difficulties in securing the supply of alternative crude oil.”
Vandana Hari also said: "Russia's medium-sulfur Ural crude oil is about $5 - 6 cheaper per barrel than similar quality Middle Eastern crude oil."
A Jefferies report last month noted that the impact of trusting industry no longer buying Russian oil was “controllable” and in the financial report, the Russian crude oil earnings for trusting industry accounted for approximately 2.1 percent.
In addition to Reliance Industries, other Indian refiners are also seeking to reduce Russian crude oil imports.
Analysts say a reduction in Russian crude imports could increase India’s cost of imports, but it won’t shock as much as if international crude prices were $70 or $80 a barrel.
At present, international crude oil prices have dropped to about US $60 per barrel across the board, a decrease of more than 25% compared with US $80 per barrel two years ago.
On October 24, the U.S. West Texas Intermediate Crude Oil (WTI) futures price was approximately US$61.83 per barrel.
There are also international experts who say that India’s benefits of reducing Russian crude oil procurement are greater than its disadvantages.Trin Nguyen, a senior economist at the French Foreign Trade Bank (Natixis), noted that the scope of Russian crude oil has narrowed and India doesn’t need to buy a lot of Russian crude at the moment.