Russia Proposes Discounts to Sustain Oil Trade with India
India and Russia are actively seeking to maintain their oil trade, with Russia proposing a new mechanism to facilitate this exchange despite potential challenges from the United States. Following threats from former U.S. President Donald Trump to impose a 25% tariff on Indian exports if the country continues purchasing Russian oil, discussions have intensified. Reports surfaced earlier this week, citing Russian diplomats in New Delhi discussing this mechanism, although specific details remain undisclosed.
Roman Babushkin, the Russian charge d’affaires at the embassy in New Delhi, expressed confidence that India’s oil imports would remain stable, stating, “I want to highlight that despite the political situation, we can predict that the same level of oil import [by India] will continue.” This statement follows a period earlier this month when Indian refiners began to avoid Russian crude in the spot market, responding to Trump’s comments.
India’s government has signaled its intention to prioritize its economic interests over U.S. directives. While Indian refiners initially turned to U.S. and Middle Eastern oil, this shift was short-lived. The demand for Russian oil quickly resumed, driven by attractive discounts on Russia’s flagship Urals blend. This situation arose as Chinese refiners were unable to fully absorb the additional volumes made available by Indian buyers temporarily stepping back from the Urals blend.
Discounts Spark Renewed Interest in Russian Oil
The new mechanism proposed by Russia may include further discounts to encourage Indian purchases, as suggested by Evgeny Griva, the Russian Trade Deputy Commissioner. He noted that Indian imports of Russian oil present “a good bargain” for buyers, with discounts ranging from 5% to 7%.
The ongoing trade relationship has drawn criticism from U.S. officials. In an op-ed for the Financial Times, Trump’s trade adviser Peter Navarro condemned India’s continued imports of Russian oil, labeling the trade as “opportunistic and deeply corrosive” to global efforts aimed at isolating Russia economically.
Since 2022, India has become the second-largest buyer of Russian crude oil, transforming Russia from a minor supplier to the top oil provider for the subcontinent. With India’s reliance on imported oil exceeding 85% of its total demand, the significance of discounts cannot be overstated. The State Bank of India recently estimated that halting Russian oil imports could increase the country’s total import bill by $9 billion during the current fiscal year, with an additional $11 billion expected in the following fiscal year.
Global Oil Market Dynamics
An energy analyst pointed out the irony of the situation, recalling that it was the U.S. administration that previously urged Indian buyers to consider Russian crude to mitigate global price shocks following sanctions imposed in 2022. Bob McNally, president of Rapidan Energy Group, remarked, “Joe Biden went to India after the invasion of Ukraine and begged them to take Russian oil… Now we’re flipping around and saying, ‘why are you taking all this oil?’”
The potential disruption of approximately 1.7 million barrels per day of trade could pose risks to global oil prices, an outcome that neither the U.S. nor India may wish to see. As discussions continue, it appears that Russia and India are exploring avenues to sustain their oil trade without facing repercussions from U.S. policies. This evolving relationship underscores the complex and interconnected nature of global oil markets.
