Is India Committing To The Kremlin?

July 26th 2024: Are the changes in India’s crude imports here to stay? Earlier this year, we wrote about the long-term prospects for oil demand in India. The IEA wrote a report that talked about India’s expected population growth and economic expansion, and we discussed the implications for tanker demand. In this Tanker Opinion, we want to go more into detail, discussing the implications for ton-mile demand of India’s shift away from the Middle East and towards Russia for its crude oil supplies. India imports about 4.5 – 5.0 mb/d of crude oil by sea. In the 12 months prior to February 2022, when Russia invaded Ukraine, average flows from Russia to India were only 88,000 b/d. During this period, India imported the majority of its crude (>60%) from the Middle East. Iraq, Saudi Arabia and the UAE (in that order) were India’s three largest suppliers. The United States and Nigeria were number four and five on the list. Russia ranked only 9th. The low ranking of Russia was not a surprise. Russia is far away from India and it has significant logistical constraints: None of Russia’s main export ports in the Baltic, the Black Sea and the Far East can load VLCCs. They are restricted to using Aframaxes and Suezmaxes. That’s why most of Russia’s crude was sold to nearby locations in Northwest Europe, the Mediterranean and China (for its Far Eastern barrels). However, everything changed on February 24, 2022. A review of Indian crude oil flows shows that seaborne imports from Russia quickly ramped up after the Kremlin attacked Ukraine and Western countries in particular started to implement sanctions. The European market closed for Russian crude and in 2022, Russian exports to India increased almost 10-fold to 875,000 b/d. In 2023, Russian exports to India doubled to 1.76 Mb/d (40% of total imports) and this level has been maintained so far in 2024. Price is the main reason that Indian refiners pivoted towards Russian crude (see chart). Up until the invasion, Dated Brent and Urals were close in price. However, after the sanctions, the “official” Ural prices have averaged $10-$20/barrel below Dated Brent (the comparison with other benchmark crudes is similar). The transactions for Russian crudes are shrouded in secrecy and the actual discounts could be much higher (some reports indicate differentials of up to $40/barrel). These discounts are so attractive that Indian refiners (both private and government-owned) have resisted pressure from Western governments to reduce Russian imports. Please fill below form to continue read.