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India tells oil companies to load up on discounted Russian Crude

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NEW YORK : The Indian government has asked state oil companies to scoop up huge volumes of cheap crude from Russia, according to industry executives, strengthening commercial ties with the country even as the West tightens sanctions on Moscow.

Western countries have sought to hamper Russia’s ability to use its vast oil and gas exports to fund the war in Ukraine. The emergence of India as a major buyer of Russian oil has the potential to take the sting out of the sanctions. Other nations, including China and Turkey, have also stepped up their purchases of Russian oil, though the country’s exports remain below prewar levels.

Indian oil executives say they have been strongly encouraged in recent weeks by government officials to find ways to continue purchases and take advantage of the price discount on Russian oil. State-owned Indian Oil Corp. Ltd 530965 -0.14%▼. is negotiating more supply contracts with Russian energy giant Rosneft Oil Co., ROSN 2.86%▲ according to one executive. 

An Indian government official said that the government wasn’t directing companies to buy Russian oil. He also said that Russian crude wasn’t under sanctions and that many countries continued to buy it.

“We don’t interfere or guide companies in their commercial deals. Our job is to formulate policies, and not to tell companies what to buy and what not to,” he said.

Demand from India will play a key role in making up for the drop in appetite from Europe, which has vowed to slash its imports of Russian oil by the end of the year.

India has increased imports of Russian oil by more than 25-fold since the start of the war, buying an average of 1 million barrels a day in June, compared with 30,000 in February, according to Kpler data. That is equal to more than a quarter of Europe’s imports of Russian crude and crude products, according to International Energy Agency data. 

India’s decision is a commercial one: The price of Russian crude tumbled after the Ukraine invasion, with a popular grade known as Urals falling as low as $37 below the Brent benchmark. It edged up in recent days to a discount of just below $34 by Monday, signaling a recovery in demand, according to analysts. 

Getting oil at a discount has major macroeconomic benefits for India. The country doesn’t produce enough of its own energy to meet domestic demand. Like much of the world, it is struggling to prevent rising fuel prices feeding into runaway inflation. High oil prices in the past pushed India’s currency into sharp decline by exacerbating the country’s current-account deficit, the shortfall between the value of what India exports versus what it imports. 

The Indian government has maintained a neutral position in the Russia-Ukraine conflict. The policy is reminiscent of India’s stance on Iran, where it continued to purchase crude from the sanctioned country due to an exemption granted by the U.S.

“We don’t send people out there saying go buy Russian oil. We send people out there saying go buy oil,” India’s Foreign Minister S. Jaishankar said early this month. “Now, you buy the best oil available in the market. I don’t think I would attach a political messaging to that.”

The Biden administration’s energy adviser, Amos Hochstein, said earlier this month that he had urged India not to profit from the Ukraine war, which has sent energy prices surging around the world. 

“I’ve said…Don’t go too far. Don’t look like you’re taking advantage of the pain that is being felt in European households and the United States,” Mr. Hochstein said in a Senate committee hearing. 

Indian companies are finding workarounds to keep Russian oil flowing, despite the latest round of sanctions from Europe.

The European Union announced a ban on insurance for ships carrying Russian oil, which will come into effect in December. About 80% of ships carrying the crude to Indian ports belong to EU shipowners, according to analysis from the Helsinki-based Centre for Research on Energy and Clean Air.

Four cargoes slated for delivery in July were arranged using Indian insurers and a Hong Kong broker for reinsurance, according to one of the industry executives. 

Discussions are also under way in India for a longer-term, state-backed solution on insurance, according to commodity traders and one of the oil executives familiar with the Indian government’s plans. One idea being discussed is for India’s government to backstop insurance to keep Russian crude flowing. 

Rosneft has sweetened deals to attract buyers for its oil, letting traders pay for its crude months after delivery without a letter of credit from a bank, a sign of desperation to keep its oil revenues flowing. 

It has also tried to help with insurance. The company said Russian insurance firm Ingosstrakh IPJSC could help provide coverage, according to one of the oil executives. Spokespeople for Rosneft didn’t respond to requests for comment. An Ingosstrakh spokesperson said all its policies were tested for compliance with Russian and international laws.

State-owned Indian Oil declined Rosneft’s offer because a 10% shareholder of the Russian insurer is Oleg Deripaska, an oligarch sanctioned by the U.S., U.K. and EU, the executive said.  

Traders are going to great lengths to conceal the origin of the crude coming from Russian ports, purposefully scrambling its path to refineries in India to avoid scrutiny, higher shipping costs and problems insuring the cargoes, shipping trackers say.

On June 3, the Elandra Denali arrived to unload Russian crude in eastern India at the Visakhapatnam refinery, which is owned by a unit of state-run Oil and Natural Gas Oil Co.

But the tanker didn’t bring the cargo from Russia—its last mooring port was in South Korea, three months ago, according to tracking by shipping website MarineTraffic, disclosures by the ships’ operators to tanker-industry body Intertanko and crews involved in the transfers.

Instead, it received a mix of cargoes from three tankers while in the ocean off the coast of Gibraltar. The supplying vessels had come separately from Russian ports in the Black Sea, as well as the Baltic Sea.

A spokeswoman for Vitol Group, whose shipping company Mansel Pte Ltd. controls the Elandra Denali, declined to comment on the vessel’s cargo. She said Vitol wouldn’t enter into any new Russian oil transactions and intended to fulfill existing contractual obligations by the end of 2022.

“Tracking oil shipments can at times be very hard to do and it can be unclear who owns a cargo,” said Marcus Baker, global head of marine and cargo for insurance broker Marsh. “Potentially a European company could insure it by mistake.”

Source : The Wall Street Journal

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