India's Oil Imports: A Looming Crisis Amid US Sanctions on Russian Crude

India, the world's third-largest oil importer, is bracing for a potential oil shock as US sanctions on Russian crude exports loom. The sanctions, targeting Russia's leading tanker group, Sovcomflot, and 14 crude oil tankers tied to it, are expected to disrupt the transportation of Russian oil, pushing India towards traditional suppliers such as Iraq, Saudi Arabia, and the UAE.



The sanctions are expected to impact India's oil imports in the short term, primarily by disrupting the transportation of Russian oil. With fewer tankers available, freight costs are likely to rise, diminishing the price advantage of Russian oil. This may push India towards traditional suppliers such as Iraq, Saudi Arabia, and the UAE, who are already increasing their share of India's oil imports. However, Indian refiners are still expected to negotiate term supply deals with Middle Eastern suppliers to secure alternative sources of oil and mitigate the impact of Russian oil supply constraints.

The sanctions are also expected to affect the pricing strategy of Russian oil exports. The sanctions target Russia's leading tanker group, Sovcomflot, and 14 crude oil tankers tied to it, which could create challenges in getting vessels for Russian oil exports. This may drive up freight rates, narrowing the discount for Russian oil, which is typically bought on a delivered basis. Secondly, Russia may have to push even more volumes through traders to shield from further sanctions risk, adding to uncertainties in the market. This could lead to a reduction in the discounts offered by Russia to maintain its competitiveness in the global oil market.

Indian state refiners are currently negotiating term deals with Russian major Rosneft for an annual volume of up to 400,000 bpd of Russian oil, mainly Urals. Rosneft has offered a discount of $3-$3.50 per barrel to Dubai prices, which is costlier than the current deal offered by Rosneft to Indian Oil, which ends on March 31, at a discount of $8-$9 to Dubai quotes on a cost and freight basis. Indian state refiners consider the proposed discount to be thin, given the uncertainties brought by sanctions.



In conclusion, India is staring at an oil shock as US sanctions on Russian crude exports loom. The sanctions are expected to disrupt the transportation of Russian oil, pushing India towards traditional suppliers such as Iraq, Saudi Arabia, and the UAE. The sanctions are also expected to affect the pricing strategy of Russian oil exports, with Russia potentially reducing discounts to maintain competitiveness. Indian refiners are expected to negotiate term supply deals with Middle Eastern suppliers to secure alternative sources of oil and mitigate the impact of Russian oil supply constraints. The situation is fluid, and the Indian government is closely monitoring the situation to ensure energy security.