No More Russian Discounts for Indian Oil Refineries

Moscow has slashed to a minimum the discount rates that Indian refineries were enjoying up until now.

The days of the “golden business” are ending for Indian oil refineries that in a year and a half increased the share of Russian oil in India’s total oil imports from 2% to 40%. According to data collected from large traders by The Times of India, “In late June – early July 2023, the average discount rate has lowered by 87%. If oil prices continue to fall, thus closing the gap between the market and the oil price ceiling set for Russian oil by G7 in 2022, “the discount could disappear altogether.”

Now the discount does not exceed four dollars per barrel, while a few months ago it was fixed at a maximum of $25-30. Sellers have to abandon offloading tariffs in order to at least slightly reduce the gap between the price of Russian Urals oil and benchmark Brent oil, as well as to avoid the risk of violating Western sanctions against Russia.

Indian refineries import Russian oil according to the terms of delivery, and the seller arranges for the transportation and insurance coverage of the oil so as not to violate the price cap regulations.

In 2022, the G7 mandated a ban on insurance coverage and financing for deliveries of Russian-origin crude oil and petroleum products unless they are sold at prices that meet a pre-set ceiling, which is currently $60 per barrel. 90% of the global oil transport insurance business is in the hands of companies from the G7 countries.

“Russian sellers are taking advantage of the current division between Indian refineries. They charge $11 to $19 for sea freight from the Baltic and Black Sea ports, which is about twice the average, after which they charge $1-2 below the western ceiling for their oil,” writes the New Delhi newspaper, according to which “if prices keep falling, the discount may disappear entirely.”

The largest oil-exporting countries are trying to contain the fall: last week, Deputy Prime Minister of the Russian government for energy Alexander Novak said that starting August 1, Russia will reduce oil exports by 500 thousand barrels per day. This radical decision corresponded to Riyadh’s policy of cutting oil production by one million barrels per day between July and August. Algeria also cut its daily oil production by 20,000 barrels.

In June, Russia began accepting payments for oil delivered to Indian refineries in Chinese yuan. And that’s because India’s trade deficit with Russia has skyrocketed to over $40 billion.