/ world today news/ India and China have absorbed almost 80% of the Russian oil exports that Europe has lost. The Asian market has become key for Moscow. Initially, raw materials were sold at a significant discount. However, recently the discount to New Delhi has already been reduced seven times. How is this explained and what will be the consequences?
Notfell asleep appetites
Almost 40 million tonnes of oil and oil products were diverted from western to eastern markets last year. First of all to India and China.
Russia became the largest exporter of black gold to India in the financial year 2022-2023. Deliveries increased 19 times – to 41 million tons, for China – by 28%, to 89 million.
In order to enter the new markets, the Asians received a large discount.
It is no secret that they resell part of the raw materials in the EU. In particular, India bought 90% more oil than usual in February, increasing supplies to Europe. Also China. Given the explosive growth of exports to Asia, Russia is watching this closely.
However, the “trial evaluation period” appears to have ended.
We started from India. According to The Times of India, citing sources, Moscow has cut discounts on Urals from nearly $30 a barrel in the middle of last year to less than $4.
The market is busy
This is quite understandable. Moscow firmly established itself in the Indian market, pushing out competitors.
According to Vortex, in May imports from Russia exceeded the combined figure of Saudi Arabia, Iraq, the UAE and the US: 1.96 million barrels per day, up 15% from April.
This is almost 42% of the domestic crude oil market – the highest result for an individual country in recent years. And OPEC members have a record low 39%.
A sharp increase in purchases of Russian oil by Indian refineries contributed to the rise in prices.
The artificial deficit on the world market created by OPEC+ also had an impact. Competition among buyers is intensifying.
“Under such conditions, there is no reason to give large discounts to local suppliers: if Indian enterprises do not buy, other consumers, mainly Chinese, will,” says Leonid Khazanov, an independent industry expert.
As Alexey Krichevsky, a financial expert, notes, the discount is gradually narrowing amid OPEC+ production cuts and rising demand in China after the pandemic.
“In addition, the American giants – “Apple”, “Tesla”, “Alphabet” and others – are actively investing in India itself, since it is an attractive market for them, including due to the trade war with China. And the increase in investment requires raw materials for building factories and ensuring their trouble-free operation. That is, more and more oil is needed,” he says.
There is another circumstance: focusing on growing demand, Saudi Aramco raises prices for buyers from the Asian region every month. So they bet on Russian raw materials.
Built logistics
Analysts associate the cancellation of the discount with a change in the trading mechanism. Oil used to be sold at a deep discount, plus producers charged $11-19 for shipping from Baltic or Black Sea ports. The total price for the most popular brand “Ural” was 58-59 dollars, below the ceiling of 60 dollars per barrel set by the G-7 countries, explains Nikolay Vavilov, a specialist in the strategic research department of “Total Research”.
Now the quotations have risen and the competition in the sea transport market has intensified. Logistical difficulties remained in the background.
“Greek and other European shipowners are no longer afraid of falling under secondary sanctions by transporting Russian oil above the price ceiling. Therefore, there are enough tankers ready to transport cargo. And since there is no shortage, then according to the law of supply and demand, the price of cargo is decreasing,” the analyst explains.
Since February, freight transport has become cheaper by 35-40%, commented Marcel Salihov, director of the Center for Economic Expertise at the Institute for State and Municipal Administration of the Higher School of Economics. The shadow fleet grows and the market gradually adapts to the price cap.
Ignoring sanctions
Experts draw attention to the fact that sanctions and price ceilings imposed by the West have practically not affected exports to Asia. Russia and India pay in national currencies – all transactions are carried out without third parties.
Neither US nor European lenders are required to buy commodities. In addition, some of the oil is still resold in Europe at market prices. So all parties win even after the discount is reduced, Krichevsky notes.
“This will definitely have a positive impact on our budget, but it is more difficult with the ruble exchange rate. The main difficulty is that the rupees accumulate in foreign accounts of exporters, which are quite difficult to sell. If you sell all Russian rupees to the state companies, then the ruble will instantly strengthen by five percent, if not more. Exports will remain at the same level due to the deficit created artificially by OPEC +. The situation from 2020, when there was so much fuel that we simply had nowhere to supply it , in no case will it happen again – that requires another pandemic,” the analyst claims.
There is no reason to worry about the decrease in oil exports, reassure experts. “The widely publicized drop in daily production of key players – Saudi Arabia and Russia – has already created a supply shortage amid steady demand and pushed prices up,” adds Nikolay Vavilov.
Meanwhile, the price of “Ural” for delivery in the port of Novorossiysk on July 12 exceeded 60 dollars per barrel. As Bloomberg notes, if this continues, Moscow will be able to claim victory by proving that it is capable of delivering goods around the world without the help of Western companies.
Translation: V. Sergeev
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