Countering G7 price cap proposal, Russia offers discounted oil to India

In a bid to counter the growing clamour among the G7 nations to enforce a price cap on Russian oil, Moscow has told New Delhi it is willing to provide petroleum at even lower rates than before to India, officials said.

“In principle, the ask in return is that India should not support the G7 (Group of Seven) proposal. A decision on this issue will be taken later following talks with all the partners,” an official with the Ministry of External Affairs (MEA) said.

These “substantial discounts” will be steeper than those offered by Iraq in the past two months, officials said.

In May, Russian crude oil was cheaper by $16 a barrel for India as compared to the average Indian crude import basket price of $110 a barrel. The discount was reduced to $14 a barrel in June, when the Indian crude basket averaged $116 a barrel. As of August, Russian crude oil costs $6 less than the average crude import basket price, officials said.

India’s biggest oil supplier Iraq undercut Russia beginning in late June, by supplying a range of crudes that on average cost $9 a barrel less than Russian oil. The extremely price-sensitive market, therefore, has shifted heavily back in favour of Iraq.

As a result, Russia slid to the third position in the list of nations from which the bulk of India’s oil originates, meeting 18.2 percent of all the country’s oil needs. Saudi Arabia (20.8 per cent), and Iraq (20.6 per cent) are the top two suppliers.

Even without the price argument, officials feel a stable supply of crude oil should be established from outside the West Asian region. “While oil imports from Iraq have remained a mainstay of our purchases, given global complications and Iraq’s volatile internal situation, India needs to create alternative mechanisms,” another official said.

Price cap push

The G7 nations, namely Canada, France, Germany, Italy, Japan, the UK, and the US, along with the European Union are currently pushing to institute a cap on the price of Russian oil.

The Western allies hope to financially squeeze out Moscow, which has continued to benefit from soaring energy prices, and cut off its means of financing the invasion of Ukraine.

Media reports suggest the oil cap plan will be implemented at the same time as the EU embargo takes effect. There will be two price caps — one for crude and the other for refined products. The crude oil cap shall apply from December 5, 2022; that on refined products shall apply from February 5, 2023.

India, being the second-largest oil importer globally, has been requested multiple times to join the price cap. “Any artificial changes to the established global price mechanism may have unintended consequences later. India will continue to weigh its options,” another official said.

Russian oil here to stay

The share of Russian crude oil, which was less than 1 per cent of India’s crude oil import volume, prior to Russia’s invasion of Ukraine in February, rose to 8 per cent in April, 14 per cent in May and 18 per cent in June, according to industry estimates and official Commerce Department data.

Since July, India’s crude oil imports from Russia have declined. But, the overall import of crude oil has also fallen.

In August, India imported 7,38,024 barrels per day from Russia, 18 per cent lower than in July, estimates made by London-based commodity data analytics provider Vortexa, which tracks ship movements to estimate imports, shows.

Officials say that until Russia continues to compete with other major producers in offering discounts, India will continue to source from it.