India close to clinching oil deal with Russia
India is close to reaching an agreement with Russia to acquire 3.5 million barrels of its oil at “great discounts.”
The deal’s broad features indicate that Russia will handle shipping and insurance for the crude’s delivery to India. This will remove a barrier to Indian refiners purchasing crude.
The agreement will signal that India is open to trade with Russia, an old ally if the agreement is finalized. A discount on crude will help India save money, albeit the negotiated amount is not that substantial.
The amount, which is close to India’s daily use of 4.5 million barrels, will be supplied over a few months, according to sources who did not mention the type of oil to be imported or the loading ports.
On Monday, Hardeep Puri, India’s energy minister, told the Rajya Sabha that his country was looking into an offer of inexpensive oil made during their telecon last week.
On the other hand, the payment system is unknown because the government has yet to figure it out. It’s proposing a rupee-rouble arrangement routed through Indian banks that don’t do business in the West and Russian banks with Indian branches. A final decision on the subject is expected in the coming days, with alternative possibilities on the table.
Imports meet 85 per cent of India’s oil needs. Russian crude accounted for 3.6 million tonnes of India’s 176 million tonnes imports between April 2021 and January 2022.
This is due to the challenges of shipping. Russia’s two crude exports are Urals and Sokol. The Urals are shipped from Novorossiysk, a Black Seaport. Because this is a long and winding journey with several trans-shipments, shipping charges are too high. Insurance and war risk premiums have risen due to the Ukraine crisis.
“…When History Books Are Written”: the US On India Buying Cheaper Russian Oil
The White House has stated that India taking up Russia’s offer of discounted oil would not violate American sanctions.
“Our message to any country remains the same: comply with the sanctions that we have put in place and recommended,” White House Press Secretary Jen Psaki said at her regular press briefing on Tuesday.
“I don’t believe this would be breaching that (sanctions),” Ms Psaki said when asked about a report that India would take up Russia’s offer of discounted oil.
“But, consider where you want to stand when history books are written in the future. “Support for Russian leadership is support for an invasion with disastrous consequences,” Ms Psaki added.
India has expressed its opposition to Russia’s invasion of Ukraine. New Delhi has repeatedly requested all parties involved to discuss their concerns. It has, but, voted against Russia in all UN Security Council decisions.
Officials from the Biden office have understood India’s stance, telling lawmakers that New Delhi’s national security is heavily reliant on Russian military supply.
Dr Ami Bera, an Indian-American Congressman, expressed dismay over news that India is purchasing Russian oil at a deep cost.
“If allegations are correct, and India decides to buy Russian oil at a reduced price, New Delhi will be siding with Vladimir Putin at a critical juncture in history, when countries all over the globe are united in support of the Ukrainian people and opposition to Russia’s terrible invasion,” he stated.
Mr Bera said that “as the world’s largest democracy and a leader of the Quad, India has a responsibility to ensure that its actions do not directly or indirectly back Putin and his invasion.”
Two Indian officials indicated that India might accept a Russian offer to buy oil and other commodities at a reduced price, meaning that Delhi wants to keep its trading partner on board despite Western efforts to isolate Moscow through sanctions.
In recent weeks, US officials have stated that they want India to remove itself as much as possible from Russia while acknowledging India’s firm reliance on Moscow for everything from weaponry and ammunition to missiles and fighter jets.
India has not condemned Russia’s invasion of Ukraine and voted against a UN resolution denouncing the action.
India, which imports 80% of its oil, only buys about 2% to 3% from Russia on a regular basis. With oil prices up 40% so far this year, the administration is considering hiking it if it will help reduce the government’s soaring energy costs.
“Russia is offering a huge discount on oil and other commodities. That will be fine with us, “According to one Indian government official.
The person went on to say that such a trade would necessitate preparatory work like shipping, insurance, and obtaining the correct blend of oil, but that once that was completed, India would accept the offer.
The officials, who did not want to be identified, did not say how much oil or how much of a discount was being offered.
An email seeking a response from the finance ministry was not returned.
According to Reuters, Indian officials attempt to establish a rupee-rouble arrangement with Russia to maintain bilateral commerce.
Russia has urged countries to keep their economic and investment links intact.
According to one of the officials, India is searching for cheaper fertilizer from Russia and its ally Belarus and oil.
‘COMPLICATED HISTORY’
Officials in India have stated that they will not replace Russia with other suppliers shortly, notably in the defence sector.
Despite a major drop over the last decade, India’s military hardware dependency on Russia is still as high as 60%.
Officials from the United States have refused to specify if India would face sanctions if Russia delivered five S-400 missile systems as part of a $5.5 billion contract negotiated in 2018.
Despite a US rule aimed at discouraging countries from purchasing Russian military hardware, the initial supply of the system began late last year.
According to Ely Ratner, US Assistant Secretary of Defense for Indo-Pacific Security Affairs, India is diversifying its defence suppliers, who spoke before the US Congress last week.
“We recognize that India and Russia have a convoluted history and connection. They get the majority of their armaments from the Russians, “he stated
“The good news is that they are diversifying their armament purchases away from Russia over a multi-year period; nevertheless, this will take time. However, they appear to be determined to do so, including their defence sector’s indigenization, which we should applaud.”
Last week, British Foreign Minister Liz Truss said that greater commercial and defence relations with India should be pursued to assist India to reduce its dependency on Russia.
New Delhi has reduced its defence imports from Russia by 53% since 2011.
Former Indian ambassador to Russia D. Bala Venkatesh Varma stated New Delhi should not be asked to pay the price for a global power struggle.
“We did not start this conflict,” he said in an online conference on Monday.
Russia has offered India more oil
Amidst western sanctions and a ban on fuel exports to the United States, Russian Deputy Prime Minister Alexander Novak told Indian Petroleum Minister Hardeep Puri on Friday that Russia is eager to expand its oil and petroleum product exports to India, and India’s investments in the Russian oil sector. Mr Puri and Mr Novak addressed the possibility of boosting India-Russia strategic collaboration in the energy sector, according to a Russian government statement, and he was the former Minister of Energy.
According to a statement released in Moscow about the phone call, “Russian oil and petroleum product exports to India have approached $1 billion, and there is clear chance to enhance this figure,” which also discussed “current and potential joint projects in the fuel and energy industry, and the fact that current projects are being executed steadily.”
“We are keen on attracting more Indian investment into the Russian oil and gas sector and extending Russian enterprises’ sales networks in India,” Mr Novak said in the statement. The Ministers decided, according to sources, to allow officials to discuss the proposals, including payment possibilities.
The talks appear to back up reports that India has received a lower oil offer from Russia, which has lost key customers in the last two weeks as a result of sanctions implemented by the US, the EU, and other nations in reaction to Russia’s aggression in Ukraine.
While European countries have exempted Russian banks involved in energy commerce from sanctions due to their steadfast reliance on Russian oil, the United States has imposed a blanket embargo on the purchase of all Russian petroleum and petroleum products as of March 8. Oil prices rose dramatically due to the decision, reaching $139 per barrel at one time and remaining above $100 per barrel today, causing worldwide inflation concerns.
Unsold stocks
Meanwhile, Russia will be left with unsold reserves if it does not find new consumers. It has lost about 7,00,000 barrels per day in US imports and may see a drop in present European intakes of 4.5 million barrels per day overtime. Russia will have produced roughly 12% of the world’s oil and 16% of the world’s natural gas by 2020.
Nirmala Sitharaman, India’s finance minister, reportedly told the media this week that Russia had made a “open offer” to sell oil to India at a lower price, but that the government’s final decision would be based on several factors, including transportation routes, payment channels, and shipping insurance costs.
A decision to buy more oil from Russia would have to be weighed against the negative reaction from India’s American and European friends, who want to “isolate” Russia economically. India does not use “unilateral sanctions,” according to External Affairs Minister S. Jaishankar. Nonetheless, in response to US concerns, India decided to “zero out” all oil imports from Iran in 2019.
Unhappy at India’s decision
Mr Puri’s meeting with Mr Novak is likely to fuel speculation that India will buy more oil from Russia, and strong criticism from Western governments, who have already expressed their displeasure with India’s decision to abstain from at least seven votes on resolutions critical of Russia’s actions at the United Nations Security Council, General Assembly, Human Rights Council, and International Atomic Energy Agency (IAEA).
According to the statement, the Indian and Russian ministers discussed the possibility of expanding “mutually beneficial cooperation,” citing India’s interest in the Arctic LNG2 and Sakhalin 1 projects, LNG purchases from Gazprom, and Russian involvement in Indian projects such as “the production, processing, and distribution of oil, natural gas, and coking coal.”
5 ways falling oil prices affect India
In recent years, oil has become one of the most crucial commodities. Oil drives a large portion of the economy. This is why oil prices are crucial in practically every economy. From $110 per barrel at the start of the year, global crude oil prices have dropped roughly 40% to $60 per barrel. This has triggered a crisis in countries that rely on oil exports, like Russia.
Here are 5 ways the fall in oil prices affects India:
Current account balance:
India is one of the world’s top oil importers. It imports about 80% of its overall oil requirements. This makes up a third of the country’s total imports. As a result, the oil price has a significant impact on India. The value of its imports would be reduced if prices fell. This helps reduce India’s current account deficit or the amount of foreign currency it owes the rest of the world. According to a report by Livemint, a drop in oil prices of $10 per barrel helps cut the current account deficit by $9.2 billion. This equates to about 0.43 per cent of the country’s Gross Domestic Product (GDP), which measures the economy’s size.
Inflation:
The oil price impacts the entire economy, mainly because it is used to transport products and services. When the price of oil rises, so do the prices of all goods and services. It affects us all directly as petrol and diesel prices rise. As a result, inflation increases. Inflation is harmful to a country’s economy. It also impacts businesses, both directly as a result of higher input costs and indirectly as a result of lower consumer demand. As a result, the drop in global crude prices is a godsend to India. According to Moneycontrol research, every $10 per barrel decline in crude oil price reduces retail inflation by 0.2 per cent and wholesale price inflation by 0.5 per cent.
Oil subsidy and fiscal deficit:
The government sets the price of gasoline at a reduced rate. It then pays businesses for any losses incurred due to selling petroleum products at lower prices. Under-recoveries are the term for these losses. This increases the government’s total spending and raises the fiscal deficit, which is the amount borrowed from the markets. A drop in oil prices minimizes company losses and oil subsidies, aiding in reducing the budgetary deficit. However, because diesel was recently deregulated, the decline in oil prices is projected to impact the government’s budget deficit significantly. Furthermore, the government is still responsible for past under-recoveries. Payments for the past under-recoveries will offset any benefit from the fall.
Payments for prior under-recoveries will negate any advantage from the fall.
Rupee exchange rate:
The demand for a free currency like the rupee determines its value in the currency market. As a result, it is heavily reliant on the current account deficit. The country must sell rupees and buy dollars to pay its bills, resulting in large debt. The rupee’s value falls as a result of this. As a result, a drop in oil prices is beneficial to the rupee. The drawback is that if the price of oil decreases, the dollar appreciates. Any benefits from a reduction of the current account deficit are thus nullified.
Petroleum producers:
Although the drop in global oil prices is helpful to India, it also has drawbacks. It has an immediate impact on the country’s petroleum exporters. According to media reports, India is the world’s sixth-largest exporter of petroleum products. This contributes to its annual revenue of $60 billion. Any drop in oil prices has a detrimental effect on exports. When India runs a trade deficit – high imports and low exports, any fall in exports is terrible news.
In addition, many of India’s trading partners and export purchasers are net oil exporters. A drop in oil prices could have an impact on their economy and reduce demand for Indian goods. This would have an indirect impact on India and its businesses. The depreciation of the Nigerian currency, the Naira, for example, lowered the share prices of Bharti Airtel and Bajaj Auto. Both corporations have a large presence in the African nation.
Crude Falls Below $100, Eases Pressure On Oil Companies
International oil prices dipped to $99.84 per barrel on Tuesday after lingering above $100 per barrel for two weeks, easing margin pressure on fuel merchants who have been maintaining gasoline and diesel prices despite rising raw material costs.
Brent crude oil prices fell more than 7% on Tuesday after surging past $100 per barrel on February 28 and reaching a 14-year high of $139 per barrel on March 7.
A recurrence of virus cases in China, which might affect demand in the world’s largest crude importer, and hints of progress in cease-fire talks between Ukraine and Russia, shook the market.
International oil prices have bounced around $40 per barrel since Russia invaded Ukraine in little more than a week.
The drop in oil prices is excellent news for India, as it would reduce the country’s import bill. India is the world’s third-largest oil importer.
According to industry sources, it will help relieve margin pressure on state-owned fuel merchants.
For a record 131 days, Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL), and Hindustan Petroleum Corporation Ltd (HPCL) have not adjusted their gasoline and diesel pricing even though the cost of raw materials has increased by more than 60%.
After polling in five states, including Uttar Pradesh, ended last week, the companies were expected to end the election-related freeze on fuel prices. Still, they kept them frozen to avoid giving the opposition a reason to corner the government in the second half of the budget session, which began on Monday.
“For oil businesses, the drop in crude oil prices is a welcome indication,” a senior official said. “Without accounting for marketing margin, they were losing Rs 12-13 per litre on fuel and diesel sales. This will now be removed.”
On November 4, international oil prices were around $81 per barrel when the businesses pressed the freeze button.
According to Oil Minister Hardeep Singh Puri, the price of petrol and diesel at the retail point or the bunk is influenced by worldwide price, cost of insurance, freight, exchange rate, refining margins, and a host of other factors the Rajya Sabha on Monday.
“Companies that market oil will make their selections (on fuel prices). They’ll go when they can’t take it any longer. They will take the required action if they do not have the necessary margin or cushion. “He had said this while denying claims that the firms were holding prices on government orders to protect the ruling BJP’s electoral prospects in five states where elections were scheduled.
Excise duty on petrol was reduced by Rs 5 per litre and that on diesel by Rs 10 on November 4, 2021, to provide relief to consumers suffering from record-high prices. Except for nine states, all had reduced their local sales taxes or VAT.
