InvestorQ : Is it true that Russia is planning to buy additional crude from Russia at a big discount?
Rutuja Nigam made post

Is it true that Russia is planning to buy additional crude from Russia at a big discount?

12 months ago

For now the diplomatic battles are still on. The US and UK have been trying to dissuade India from dealing with Russia and support them in these sanctions. However, India with its deep linkages to Russia is unlikely to relent. Now India has decided to reduce its cost of procuring oil by purchasing oil from Russia at deep discounts. Russia, amidst the sanctions, has been selling oil at rather steep discounts to get rid of the inventory before larger sanctions.

For India, buying Russian oil is not just an economic opportunity but also a diplomatic opportunity. India has consistently maintained its support from Russia. Accordingly, India had abstained from voting against Russia in the UN Security Council, the UN General assembly and even the vote by the UNHRC. It now looks like India will also help Russia by absorbing some of its excess oil reserves at lower prices.

In a way, India would want to make the best of this opportunity. India currently imports about 80% of its daily oil requirement, but Russia accounts for just about 3% of its oil import share. Now, the problem is that oil is up 40% this year and that is impacting the landed cost of oil resulting in imported inflation. In this context, India has agreed to absorb Russian oil, since Russia is more than willing to offer steep discounts to its old friends.

There are some building blocks still pending before this can start. There is a need to expand transport logistics, insurance cover and get the right blend of crude. In addition, Russia was blocked from SWIFT by several nations, so payments will be a major challenge. That is why the Indian government is working with Russian authorities to facilitate a system of Rupee/Rouble trade wherein payments can be made either in rupees or roubles.

India will look at this as the start of a much larger trade relationship with Russia. India is also looking at Russia to import fertilizers, minerals and chemicals; where India is facing major shortages. Defence is one segment where links between India and Russia are old and deep and is unlikely to change at any country’s behest. The US is not sure if their embargo applies to India. However, for now, India wants to make hay while the Russian sun shines.

India has a different take on the matter. Their contention is that the Russia / Ukraine conflict was not something that India had created. Of course, in the past, India has cut its defence imports from Russia by over 53% in last five year. However, India has not had a major focus on building Russia trade the way China, Japan or EU has done. That is what India is trying to fill up and could have long term implications for India.