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Russia offers deep discounts on crude oil to find more buyers in the midst of Western sanctions. Discount offers arrived at the time of global crude prices floating at a high level and the economy globally not in a good form was hit by supply chain disorders due to Covid-19 pandemic and Russian invasion in Ukraine. These are discounts for Russian crude oil facilities for India:
How big is the import of overall Indian crude oil and from Russia?
India imports more than 80 percent of crude oil requirements. The country imports 193.5 million tons of crude oil in the current financial year until February, at a cost of $ 105.8 billion. The total consumption of state petroleum products reached 183 million tons during the period. Crude oil in this country mainly comes from the Middle East and the US.
From Russia, throughout 2021, the country bought only 12 million barrels of oil, which was only 2 percent of the total imports. Indian domestic production itself is more than that.
How Much is the Russian Discount and Will India Benefit?
Russia offers $ 35 per barrel discounts. If India increases the supply of crude oil from Russia, it can help withstand the increase in domestic oil prices. In a meeting with the British foreign secretary Elizabeth Truss, Minister of External Affairs S Jaishankar on Thursday said, “When oil prices rise, it is natural for countries to find good deals for their people. He added that “I’m pretty sure if we wait 2-3 months and see the big buyer of Russian gas and oil, I suspect the list will not be different from what used to be & we will not be above-10.”
Offering discounts, Russia also wants India to buy 15 million barrels of oil as an initial agreement. According to data compiled by the KPLER research group commodities, India did not import oil from Russia in January and February but the March and April contracts had touched six million barrels of ural grade oil.
Cheaper Crude Oil Imports on Domestic Economy
Lower crude oil prices will be needed for India to maintain domestic petroleum prices under checks that have crossed Rs 100 per liter in Delhi and even more in several other states. Lower levels can maintain inflation under control because the costlier petroleum affects other commodity prices and, therefore, space for RBI not to raise interest rates Retail inflation in February rose to an eight-month high of 6.07 percent, which was outside the target rate of the Bank of India (RBI) reserves. The RBI can use raising interest rates to bring inflation below the 4-6 percent target range.
Global Crude Oil Prices Scenario
Global oil prices have been at high levels since when Russia invaded Ukraine and further global oil supply was stopped. At present, Brent crude stood at $ 108.32 per barrel, while WTI was at 103.62 per barrel After Russian President Vladimir Putin agreed to a special military operation in the Ukrainian Donbass region on February 24, Brent crude oil prices reached USD 100 per barrel for the first time since 2014. In the following days, the future of West Texas Medium crude oil even skyrocketed. Up to $ 130.50 a barrel, the highest since July 2008, before retreating. Brent also reached a high of $ 139.13, also the highest since July 2008.
Rupee-Rouble Trade Mechanism
The conversation occurred in the rupee trade between India and Russia, because the West had sanctioned Russia for attacking Ukraine. Russia has offered payments using the Russian SPF message system. The agreement has not been completed Under mechanisms, Indian exporters will be paid in local currencies for their export to Russia instead of dollars or euros, international currency.
India spent $ 105.8 billion to import crude oil from various countries in the current financial year until February. Rubel Rupee trade can help India save forex reserves to meet other financial needs and stability.
This mechanism is expected to be completed during the visit of the Russian Foreign Minister Sergey Lavrov in India. “Welcoming the Foreign Minister Russian Federation Sergey Lavrov as he arrived in New Delhi for an official visit,” said the External Ministry of Arindam Bagchi in a tweet on Thursday.
Russian President Vladimir Putin said on Thursday that he had signed a decree that said foreign buyers had to pay in the ruble for Russian gas starting April 1, and the contract would be stopped if this payment was not carried out.
Indian Refining Companies’ Worry
Apart from the benefits, there are also worries about importing cheaper crude oil for Indian refinery companies. State purification companies face the challenge of funding this discount purchase.
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