Wednesday 25 May 2022
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IOC buys 15 million barrels of Russian oil; Reliance desists

IOC made the purchase on modified terms that require the seller to deliver it to the Indian coast, but Reliance said it is wary of inviting American ire

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Indian Oil Corporation (IOC), the biggest oil firm in the country, has bought 3 million barrels of crude oil that Russia had offered at a steep discount to prevailing international rates, sources said. The purchase, made through a trader, is the first since Russia’s 24 February attack on Ukraine that led to US-led sanctions, chiefly trade embargo, on the Vladimir Putin administration.

Sources said IOC bought Urals crude for delivery in May at a discount of $ 20-25 a barrel to dated Brent.

But Reliance Industries Ltd, operator of the world’s biggest refining complex, may avoid buying Russian fuels for its plants following Western sanctions on Moscow over its invasion of Ukraine, a senior company official said. “Even if we can source some of the feeds (from Russia), probably we will be out of it because of the sanctions,” Rajesh Rawat, senior vice president and business head cracker, told an industry event yesterday.

Reliance buys Urals crude and straight run fuel oil for its refineries from Russia. The private refiner mostly buys its petrochemical feedstock from West Asia and the US.

As the US and other western nations slapped sanctions on Moscow, Russia has begun offering oil and other commodities at discounted prices to India and other large importers.

IOC made the purchase on modified terms that require the seller to deliver it to the Indian coast so as to avoid any complications that sanctions may lead to in arranging shipping and insurance.

Unlike the sanctions the US imposed on Iran over its controversial nuclear programme, oil and energy trade with Russia has not been banned. This means international payment systems are available to settle any purchase made from Russia, they said.

This wasn’t the case with Iran, which was cut off from the international money and security transfer system, Swift. Also, companies or entities investing or buying oil from Iran were sanctioned.

India, which imports 85 per cent of its oil needs, is looking to cut spiralling energy bills through purchases from anywhere it can get at cheaper rates.

Oil Minister Hardeep Singh told the Rajya Sabha on 14 March that the country would evaluate the Russian offer to sell crude oil at discounted prices after considering aspects such as and freight required to move the fuel from the non-traditional supplier. “Let me again reiterate that in a situation like the one characterised by the pandemic in the last two years and in the last few weeks by a war or a military action taking place between Russia and Ukraine, the government will explore all options which are available,” he had said.

The minister said he had had discussions with the Russian government officials. “Discussions are currently underway. There are several issues which are required to be gone into like how much oil is available either in Russia or in new markets or with new suppliers which may be coming in the market. Also, there are issues relating to insurance, freight and a host of other issues including the payment arrangements,” he had stated.

India, which has historic diplomatic and defence ties with Russia, has called for an end to the violence in Ukraine but stopped short of condemning the invasion.

Many countries, including European nations, remain heavily dependent on fuel from Russia, the world’s second-largest crude oil exporter behind Saudi Arabia.

India buys just 1.3% of all its oil needs from Russia. New Delhi’s decision to take up discounted oil from Russia will not violate any of the US sanctions on Moscow, the White House has said.

US President Joe Biden last week announced a ban on Russian oil and gas imports over the country’s invasion of Ukraine, targeting the main artery of Russia’s economy. “Our message to any country continues to be that abide by the sanctions that we have put in place and recommended,” White House Press Secretary Jen Psaki told reporters at her daily news conference on 15 March.

Asked about a media report on the possibility that India could take up the Russian offer of discounted crude oil, Psaki said, “I don’t believe this would be violating that (sanctions).”

GlobalData, a leading data and analytics company, said given India’s neutral stance on the Russia-Ukraine conflict, Moscow’s offer of oil and other commodities at discounted prices will provide relief on the fiscal front.

“India’s attempt to diversify its import sources will tend to reduce the financial burden on the government thereby reducing the risk of high import bills. Moreover, cheaper crude may bring down the current cost of production and help cool off inflationary pressures,” said Gargi Rao, Economic Research Analyst at GlobalData.

Sanctions on Russia have prompted many companies and countries to shun its oil, depressing Russian crude to record discount levels.

Rawat said in India most of the oil supplies from Russia are going to state-run companies.

“So probably, those feed streams will still continue, or may have a lesser impact compared to the private sector players. Because we deal with banks, and also even if we can source some of the feeds (from Russia), probably we will be out of it because of the sanctions,” Rawat told the Asia Refining and Petrochemical Summit.

Since Russia’s invasion of Ukraine began on 24 February, India’s top refiner Indian Oil Corp has bought 3 million barrels of Russian Urals crude and Hindustan Petroleum has bought 2 million barrels of the oil through tenders.

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