West cap on Russian oil price unlikely to hit India’s imports
The price cap on Russian seaborne crude oil is expected to kick in on Dec 5
NEW DELHI: The European price cap on Russian crude, announced on Friday, may not disrupt India’s energy imports from Russia as Indian refiners are free to lift any quantity of Russian oil provided they don’t use shipping, insurance and other services of European firms, according to two senior officials who said that the purchase could even be settled through the Rupee-rouble mechanism.
Unlike crude imports from Iran and Venezuela, there is no sanction on Indian refiners from purchasing Russian crude, the first official, a senior bureaucrat in an economic ministry said. The other official, also a senior bureaucrat from another economic department said the European price cap on Russian crude may not harm Indian interests as “rupee-rouble trade settlement mechanism is ready” and that Indian refiners may likely getting Russian
crude “well below” the price cap. Both officials asked not to be named. AFP reported on Friday that European Union will join the G7 governments in imposing a $60 a barrel price cap on Russian seaborne oil with an adjustment mechanism to keep the cap at 5% below the market price to stifle Russia’s oil income.
Meanwhile, the Russian government said it was not bothered
about the proposed price cap on its oil exports by the West as it would directly negotiate with partners such as India and China. The price cap on Russian seaborne crude oil is expected to kick in on December 5.
“Russia is now one of India’s top three crude oil suppliers,” the first official said, adding that Indian refiners are free to source crude from about 30 countries depending on their commercial judgement. Iraq and Saudi Arabia are the country’s two other major crude suppliers. India, which imports at least 85% of its crude oil requirements, has turned to hugely-discounted Russian crude to meet its energy needs after producers’ cartel , Organisation of the Petroleum Exporting Countries (OPEC) , resorted to supply cuts to keep international oil prices artificially high.
Both New Delhi and Moscow are also exploring the option of Rupee-rouble trade to avoid trade disruption and the government has already given approval to nine Russian banks to open vostro accounts, the second official said. A vostro account is held by a bank on behalf of another bank.
The first official said, “The Indian economy is growing and it needs assured energy supply at an affordable rate, hence (oil from) Russia.” New Delhi has ramped up imports of Russian crude from less than 2% of country’s total requirements to 12-13% in last few months. Despite that international oil price volatility is a major concern for state-run oil marketing companies, he said. According to the official, state-run oil marketing companies (OMCS) have incurred huge revenue losses by keeping petrol and diesel prices below market rates since April this year and the government is evaluating ways to help them make up their losses which were incurred to shield consumers and to tame inflation.
“Somebody [read the economy] benefited from the move of OMCS, hence somebody [the finance ministry] must compensate,” he said indicating some supplementary grants in 2022-23. He, however, ruled out any immediate reduction in petrol and diesel rates as OMCS are losing revenue on combined sales of the two auto fuels. HT on December 1 reported that state-run OMCS are reluctant to slash auto fuel prices , citing a ₹10 a litre loss on diesel and accumulated losses of about ₹25,000 crore in the last two quarters for selling fuel below market rates.
A cut at this point also does not make sense, the official said, since the sales volume of petrol is far lower than that of diesel, which means the gains are not enough to offset the losses. Diesel constitutes about 40% of total refined fuel sales volume, while the share of petrol is less than 20%.