Russian Foreign Minister Sergei Lavrov visited India April 1, as Moscow seeks to increase exports to Asia to make up for a predicted shortfall in deliveries to countries in the west in the wake of Russia’s invasion of Ukraine, reports SP Global.
Closely monitoring global energy markets
“We will be ready to supply to India any goods that India wants to buy,” Lavrov said, according to a ministry statement released April 1.
Indian junior oil minister Rameswar Teli said March 31 that the Indian government is closely monitoring global energy markets in the context of evolving geopolitical events.
He added that the government “is ready to take all appropriate action, as deemed fit, including supporting initiatives for releases from Strategic Petroleum Reserves, for mitigating market volatility and calm the rise in crude oil prices.”
Indian Finance Minister Nirmala Sitharaman said that he will put energy security first.
“If there is, first of all, fuel available at a discount, why shouldn’t I buy it? I need it for my people so we have already started purchasing,” he said.
“We have started buying, we have received quite a number of barrels — I would think three-four days supply and this will continue,” Sitharaman said, speaking at an event on April 1.
Russian officials have said that producers can shift volumes to alternative destinations, and do not see any risk that their oil will not find a market.
Analysts see Asian markets as the most promising alternatives, although some countries in the region, including Japan and South Korea, have also sanctioned Russia.
Tie up with Russia
India has not introduced sanctions against Russia. However, analysts have said that Indian buyers are concerned about shipment logistics and potential delays of cargoes from the Black Sea region as a result of the conflict in Ukraine. This may prompt them to temporarily look for replacement cargoes from the Middle East.
India imports nearly 85% of its crude requirements, with Russian crude accounting for less than 3% of the around 4.3 million b/d crude imported in 2021, according to S&P Global Commodity Insights analysis. India primarily imports from the Middle East at present.
Russia has been increasing its energy links with India in recent years. Russia’s biggest crude producer, Rosneft, owns a significant stake in Indian refiner Nayara Energy, and is looking to increase cooperation on LNG at a time when south Asia is a key development priority for Russia.
Indian companies have also joined Russian upstream projects, including Rosneft’s Vankor and Taas-Yuryakh. Following Western companies’ announcements of plans to exit Russian projects, analysts see Asian investors as potential buyers of these stakes.
Price discounts
Russian crude has been trading at a massive discount since Russia invaded Ukraine Feb. 24. Cheaper crude is appealing to India at a time when surging oil prices are starting to put a huge amount of upward pressure on import bills and inflation.
Differentials for Russian crude have collapsed, primarily due to European buyers withdrawing from the Russian Urals market, as well as international import bans announced by the US, Canada and the UK.
Russian Urals was assessed by S&P Global Commodity Insights at a $31.05/b discount to Dated Brent on a CIF Rotterdam basis and a $30.50/b discount to Dated Brent on a CIF Med basis April 1. This marks a $26/b fall in value since the start of the invasion on Feb. 24.
More recently, levels have tumbled to new record lows due to pressure from the release of the April Urals program March 25. In April, loadings are expected to total 9.26 million mt, representing 411,294 b/d more than the March program and the largest program since May 2019. Domestic Russian refineries have been forced to reduce crude intake amid full stock levels, while refineries struggle to export oil products, boosting the seaborne export program for crude significantly.
Alternative currencies
Sanctions have also restricted Russia’s ability to conduct financial transactions with Western partners. This is accelerating an existing trend to move to alternative currencies to the dollar and euro.
Lavrov said that in the current circumstances Russia will continue to move to alternative currencies in trade with India.
“I want to remind you that we started moving away from using dollars and euros to using national currencies more and more in our relations with India, China and many other countries many years ago. Under the current circumstances, this trend I believe will intensify, which is natural and obvious,” Lavrov said.
“We don’t want to depend on a system that could be closed off at anytime, and we don’t want to depend on a system whose masters can steal your money overnight,” he added.
Russia introduced new legislation March 31 requiring customers from sanctioning countries to pay for Russian gas in rubles.
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Source: SP Global
