India's Russian Oil Secret: How Cheaper Fuel Flows Despite US Sanctions!

India is set to maintain its significant imports of Russian crude oil, strategically navigating new US sanctions by employing less transparent shipping methods. Analysts predict that any temporary slowdown in these flows will be short-lived, as Russia adapts its export strategies and Indian refiners continue to seek out compliant, non-sanctioned suppliers.

The primary driver for this continued reliance on Russian oil is its highly cost-competitive nature. Sumit Ritolia, lead research analyst at Kpler, points out that Indian political leaders are unlikely to be seen bowing to US sanctions, reinforcing the decision to continue buying from non-sanctioned suppliers of Russian oil.

Latest Updates

• New US sanctions, implemented in November, are designed to tighten control over Russia's "shadow fleet" and sanctioned traders, aiming to restrict vessels and routes used for transporting Russian crude.
• These measures are part of a broader effort to enforce the G7 oil price cap, which seeks to limit Russia's revenue from oil sales without disrupting global supply.

Market Reaction

• November saw a surge in Indian imports, averaging around 1.9-2.0 million barrels per day (mbpd), driven by refiners stocking up before the sanctions deadline.
• However, December arrivals are expected to drop significantly. Ritolia forecasts December arrivals to be in the range of 1.0–1.2 mbpd, with potential stabilization around 800 kbd (thousand barrels per day) as loadings thin. This indicates a temporary dip rather than a complete halt.

Company and Domestic Factors

• Domestic factors like strong demand for transport fuels also made discounted Russian grades more appealing in November.
• Nayara Energy, structurally reliant on Russian crude due to its ownership links with Rosneft, saw a sharp increase in its operations using Russian grades.
• Russia has shown adaptability by employing methods like ship-to-ship transfers and mid-voyage diversions to keep barrels moving and offer greater discounts.

Future Expectations

• Unless the US introduces sweeping "secondary" sanctions, India is likely to continue importing Russian crude, albeit through more indirect and opaque channels, possibly pivoting to non-sanctioned Russian entities.
• Refiners also highlight that Russian oil itself is not sanctioned, provided sellers and shippers are compliant. To cover potential shortfalls, Indian refiners are expected to diversify by increasing purchases from countries like Saudi Arabia, Iraq, UAE, and others globally.

Impact

• India's continued import of Russian oil, despite sanctions, impacts global energy dynamics and India's geopolitical standing. It ensures India's energy security and cost-effectiveness but may strain relations with the US.
• Impact Rating: 7/10

Difficult Terms Explained

• Sanctions: Penalties imposed by governments to restrict trade or financial activities.
• Crude Oil: Unrefined petroleum.
• Shadow Fleet: Tankers operating outside regulations, often used for sanctioned oil.
• G7 Oil Price Cap: A policy limiting the price of Russian oil to reduce war funding.
• Ship-to-Ship Transfers: Moving cargo between vessels at sea to obscure its origin or destination.
• Mbpd: Million barrels per day, a measure of oil flow.
• Kbd: Thousand barrels per day, another measure of oil flow.
• Secondary Sanctions: Sanctions imposed on third parties dealing with sanctioned entities.