India rushes to seal historic oil deal with Russia, by Olga Samofalova for RiaNovosti. 12.17.2024.
India is ready to sign a long-term contract with Russia for the supply of a significant volume of oil. And it wants to do it as quickly as possible. Such haste may indicate that India is betting on a quick end to the conflict in Ukraine and the lifting of European sanctions. Why could the deal be historic?
Russia and India have already signed or are preparing to sign a long-term oil contract, which has already been dubbed historic. Indeed, until 2022, Russia did not trade oil with India at all, and now it is its main supplier to the country. Russia supplies about 2 million barrels per day to India by sea transport and provides about 40% of all oil imports to the country.
Reuters sources previously said the deal had already been signed – between Rosneft and the Indian oil refinery complex Reliance in the western state of Gujarat. It is one of the largest refineries in the world. And deliveries through it will begin as early as January 2025.
However, the Business Standard newspaper , citing its sources, claims that the deal has not yet been signed, but the Indian government plans to expedite the conclusion of a long-term agreement to purchase oil from Russia by the next financial year, which begins in April 2025. The discussions involve a combined group of state-owned oil refineries, which are expected to intensify negotiations with Russia in the near future. Officially, the parties are silent.
Reuters sources even named the parameters of the deal. The agreement is concluded for 10 years for the supply of about 500 thousand barrels per day. Most of the supplies will be Urals oil, which will be sold three dollars cheaper than Dubai grade quotes next year. However, prices and supply volumes will be revised annually. Based on today's prices, the contract will cost $13 billion per year, and over 10 years we could be talking, roughly speaking, about $130 billion.
This deal could become the largest for oil for Russia. “500 thousand barrels per day is about 15% of current Russian seaborne crude oil exports and corresponds to almost 0.5% of the world supply of liquid hydrocarbons,” says Sergei Kaufman, an analyst at FG Finam.
“If India is going for a long-term deal and is in a hurry to conclude it, it means that it feels that the story with Ukraine and the confrontation with the collective West is close to its denouement.
If Trump manages to stop the hostilities, then European sanctions could be lifted, and this would mean the restoration of oil supplies from Russia to Europe, while India, on the contrary, would lose these volumes,” believes Igor Yushkov, an expert at the National Energy Security Fund and the Financial University under the Government of the Russian Federation.
The main thing for Delhi in the deal is to secure supplies on preferential terms, that is, with a certain discount, the expert believes. In his opinion, the size of the discount is the key point around which both sides will negotiate.
“The Russian side will also consider the scenario of normalizing relations with Europe and the emergence of the opportunity to sell Russian oil at a higher price to European consumers,” says Yushkov.
However, there are risks for both sides, since when the armed conflict in Ukraine will end and when Western sanctions will be lifted are unknown variables. “But if India did not have the fact of expecting the end of the armed conflict in Ukraine, then there would be no discussion of a long-term deal,” the FNEB expert is sure.
As for the contract price and discount, the price will most likely be tied to benchmark grades of oil with a discount of some amount of dollars. A more complex scheme is possible, when the discount depends on the price corridor in which the benchmark grade of oil is traded, Yushkov does not rule out.
"Such a long-term contract with one of the largest energy companies implies that India, despite the sanctions pressure, is counting on long-term cooperation with Russian oilmen. This is especially important for Rosneft, given the development of the Vostok Oil project," Kaufman believes.
Until 2022, Russia supplied virtually no oil to India. Supplies first began in the spring of 2022, and grew sharply with each month. Therefore, when EU sanctions against Russian oil came into force in December 2022, we had already managed to establish logistics and deliveries of large volumes to India.
"Why did Russia manage to switch to the Indian market so quickly and successfully in 2022? Because by that time, many oil refineries had already been built on the Indian coast and there was already a successful business. Indian refineries bought Middle Eastern oil (at first, the largest supplier was Iraq, then Saudi Arabia and the United Arab Emirates), processed it and sold oil products to foreign markets. Only part of the processed oil was shipped to the domestic market. Now Indian refineries process Russian oil, because it is sold at a discount to Brent, and earn even more on the sale of oil products from Russian oil," recalls Igor Yushkov.
Moreover, India sells its oil products made from Russian oil to many markets – both the European Union and Britain and even the USA. No sanctions prohibit such a scheme.
"Indian oil products have partially replaced our oil products on the European market. Moreover, many refineries in Europe are now underutilized because it is cheaper to buy oil products in India made from Russian oil than to load our own refineries," – says Yushkov.
Previously, there were problems with our oil sellers being unable to withdraw rupees from Indian bank accounts, which Indian buyers used to pay. At the same time, we have nothing to spend such a volume of rupees on – Russia buys few Indian goods.
However, according to the Central Bank, this problem can be solved by eliminating trading in rupees and switching to selling Russian oil to India for yuan, Hong Kong dollars or dirhams.
https://m.vz.ru/economy/2024/12/17/1303770.html
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