New Delhi: In response to mounting pressure from the G7 nations to control the price of Russian crude oil imports, Moscow has told New Delhi that it is willing to provide oil at lower costs than previously.
“In principle, the ask in return is that India should not support the G7 proposal. A decision on this issue will be taken later as talks with all partners progress,” an official with the Ministry of External Affairs (MEA) clarified.
According to officials, the “significant discounts” will be more than those that Iraq offered in the previous two months.
In May, Russian crude oil was $16 per barrel less expensive for India than the average basket price of Indian crude imports, which was $110 per barrel. In June, when the Indian crude basket averaged $116 per barrel, the discount was lowered to $14 per barrel. According to officials, the price of Russian crude oil is $6 cheaper than the average price of the crude import basket as of August.
Iraq, which currently supplies the most oil to India, started to compete with Russia in late June by selling a variety of crudes that, on average, cost $9 per barrel less than Russian oil.
As a result, the very price-sensitive market significantly turned back in Iraq’s favour.
As a result, Russia fell to third place on the list of countries that supply the majority of India’s oil, providing 18.2% of the nation’s total oil requirements. Iraq (20.6%) and Saudi Arabia (20.8%) continue to be the top two countries.
Even without the price argument, officials feel a stable supply of crude oil should be established from outside the Middle East region. “While oil imports from Iraq have remained a mainstay of our purchases, given global complications and Iraq’s volatile internal situation, India needs to create alternative mechanisms,” another official said.
Price cap push
The European Union, along with the Group of Seven (G7) countries—Canada, France, Germany, Italy, Japan, the UK, and the US—and the United States—are actively promoting the implementation of a cap on the price of Russian oil.
By cutting off Moscow’s sources of funding for the invasion of Ukraine, the Western allies want to financially squeeze out Moscow, which has continued to profit from rising energy prices.
According to media sources, the EU embargo and oil cap proposals will both go into place at the same time. For crude and refined products, there will be two price caps. Beginning on December 5, 2022, the crude cap will be in effect; refined goods will follow on February 5, 2023.
India, being the second largest oil importer globally, has been requested multiple times now to join the price cap. “Any artificial changes to the established global price mechanism may have unintended consequences later. India will continue to weigh its options,” another official said.
Russian oil is here to stay
After the start of the Russia-Ukraine war in February, the proportion of Russian oil in India’s total oil imports rose from 2% to 14% in the following few months.
According to industry estimates and official Commerce Department figures, Russian crude oil increased from less than 1% of India’s total crude oil imports before Russia’s invasion of Ukraine in February to 8% in April, 14% in May, and 18% in June.
India has decreased its imports of Russian crude oil during the past two months, starting in July. But crude oil imports as a whole have decreased as well.
According to estimates from London-based Vortexa, a supplier of commodity data analytics, India imported 7,38,024 barrels per day from Russia in August, which is 18% less than in July. Vortexa tracks ship movements to estimate imports.
According to officials, India will continue to source from Russia as long as it offers discounts that are competitive with those of other significant producers.