Indian refiners becoming wary of buying Russian oil as EU sanctions loom

The Asian giants, who are two of the world’s top three importers, had become Russia’s biggest customers after the West shunned Russian oil after the outbreak of war in Ukraine

November 16, 2022 09:12 pm | Updated 09:24 pm IST - NEW DELHI

Chinese refiners have already begun slowing down Russian oil imports from next month

Chinese refiners have already begun slowing down Russian oil imports from next month

Indian refiners are wary of buying Russia crude oil loading after December 5 when European Union sanctions take effect, pending clarity on the proposed G7 price cap mechanism, according to sources familiar with the refiners’ crude purchase plans.

Chinese refiners have already begun slowing down Russian oil imports from next month.

The Asian giants, who are two of the world’s top three importers, had become Russia’s biggest customers after the West shunned Russian oil after the outbreak of war in Ukraine.

Reduced buying by both of them would leave Russia chasing alternative customers, potentially depressing prices even if those new buyers are unlikely to join a plan by rich nations in the Group of Seven (G7) to cap Russian oil prices.

Reliance Industries Ltd., operator of the world’s biggest refining complex and a major customer for Russia, has not placed orders yet for Russian cargoes loading after Dec. 5, two sources familiar the refiner’s purchase plans told Reuters.

Neither has state-run Bharat Petroleum Corp, they said.

The Indian companies did not respond to Reuters email seeking comments.

According to the sources, Reliance is cautious about reactions from foreign banks given its exposure to the western financial system and overseas sales of refined products.

“There are too many uncertainties attached to the cap mechanism. We don’t know what the payment mechanism could be and what could be the cap level,” said a source at one of the state refiners.

Still, Indian Oil Corp., the country’s top refiner, has placed orders for Russian cargoes, including for loading some parcels beyond Dec. 5, under term and spot deals, said one of the sources.

“IOC wants to secure barrels,” the source said, adding that Indian refiners have the option of raising purchases under their term deals with the suppliers, mainly in the Middle East, to meet their contractual commitments if they face problems in getting Russian supplies.

IOC did not respond to Reuters email requesting comment.

In contrast, private refiner Nayara Energy, majority owned by Russian entities, plans to continue Russian oil imports, sources aware of its crude purchases said.

After western sanctions were imposed on Russia and Rosneft, which owns about 49% of Nayara, most foreign banks stopped dealing with Nayara, leaving the refiner dealing through Indian banks.

While refiners are cautious about sanctions, India and Russia have set up alternatives to western insurance, finance and maritime services in order to conduct their trade.

Indian refiners buy Russian oil on a delivered basis with insurance - cargo, P&I and hull and machinery - arranged by Russian entities. India accepts Russian insurance.

Also, India has recently devised a mechanism to settle trade with foreign nations in rupee terms through vostro accounts of foreign banks in India.

A commerce ministry official on Tuesday said Russia’s Gazprombank had opened a vostro account with UCO Bank, and VTB Bank and SberBank have opened accounts with their own India-based branch offices.

India’s central bank in July this year introduced a new mechanism for international trade settlements in rupees.

Top News Today

Sign in to unlock member-only benefits!
  • Access 10 free stories every month
  • Save stories to read later
  • Access to comment on every story
  • Sign-up/manage your newsletter subscriptions with a single click
  • Get notified by email for early access to discounts & offers on our products
Sign in

Comments

Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.

We have migrated to a new commenting platform. If you are already a registered user of The Hindu and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.