It was a major setback for India looking for a permanent Rupee payment arrangement with Russia to help lower its currency conversion costs. India’s state and private refiners are now said to be largely paying in Yuan which is also helping Beijing’s efforts to internationalise its currency. The latest Rupee-Dirham trade pact with the United Arab Emirates could be an answer to the unreasonable Russian demand. Last year, India’s import of crude oil from the UAE was valued at US$17.84 billion.

The other critical issue is the import of Russian crude on a c.i.f. (cost, freight and insurance) basis, under which Russian exporters engage tanker vessels putting freight and insurance costs on the Indian importers. While Indian crude oil importers pay around $60 per barrel, the delivery charges vary between $11 and $19 per barrel for shipment from the Baltic and Black Sea to the west coast of India. The delivery costs are much higher than the normal rates for comparable distances. Russian exporters have reportedly put in service over 100 tanker vessels, including several of them hired from a little known Indian-promoted private enterprise, Gatik Ship Management, operating from Mumbai’s Neptune Magnet Mall at Bhandup West. Gatik had just two chemical tankers in 2021. In a year’s time, it had acquired a fleet of 58 vessels with an estimated combined value of $1.6 billion, according to reports citing shipping experts VesselsValue. These vessels, having an average age of around 17 years, are being used to ship Russian oil meant for India. While Russian oil discount to India has dropped to $4 per barrel, delivery charges remain opaque.

As the situation stands now, there may not be much difference in the landed cost of crude oil from Russia and from India’s traditional suppliers in West Asia. India, the world’s second largest crude oil importer, could possibly negotiate with West Asian suppliers to bring down prices. Interestingly, India’s ministry of petroleum and natural gas secretary Pankaj Jain had recently said that some Russian crude was purchased by Indian refiners above the price cap imposed by G-7. He said most of the Russian crude purchased by Indian refiners was below the price cap ($60 per barrel) but some cargoes were above that price too, elaborating that India isn’t being prevented from buying above the cap. He said some payments for Russian cargoes were delayed but refiners are coming up with solutions to pay for the crude purchased above the price cap and added that India is also seeking discounts on crude from other countries depending on the oil grade.

Logically, the handful of India’s oil importers should have formed a cartel or consortium to improve their price bargaining power. Unfortunately, that has not happened. The price discounts for Russian oil have been shrinking as leading Indian importers from both the public and the private sector refiners such as Indian Oil, Hindustan Petroleum, Bharat Petroleum, Mangalore Refinery and Petrochemicals and HPCL-Mittal Energy as well as Reliance Industries and Nayara Energy continue to negotiate deals with Russian exporters separately. The discounts could have probably been higher if at least the state controlled units, which account for roughly 60 percent of the two-million-plus barrels per day of Russian oil flowing into India, negotiated together. It is difficult to explain why the petroleum ministry has been staying aloof in this regard. With the Chinese demand for Russian oil practically maxed out, India has emerged as the biggest destination of Russian crude. If Indian importers negotiated the rates together, they could have possibly extracted higher discounts on the c.i.f. value of Russian oil. Indian Oil is the only company to have entered into a term or fixed volume deal. Other refiners continue to buy on a tender basis.

According to reports, public sector Indian Oil, the largest importer of Russian crude, in June became the first state refiner to pay for Russian purchases in yuan. At least two of India’s three private refiners — Reliance, Nayara Energy and HPCL-Mittal Energy — are said to be making Yuan payments for Russian oil imports. However, none of them made the ‘disclosure’ officially. Surprisingly, the government itself has chosen to be silent on this aspect despite the fact that it had asked the Indian importers not to indulge in Yuan payment. Since the imposition of NATO sanctions on Russia, Indian refiners have mostly bought Russian crude from Dubai-based traders and Russian oil companies such as Rosneft, the Litasco unit of Russian oil major Lukoil, and Gazprom Neft. Last month, Indian imports climbed to a new high of around 2.2 billions per day, according to Viktor Katona, head of crude analysis at Kpler. Now, buying Yuan to pay for Russian oil imports goes against the very essence of India’s diplomatic stance against China in global forums.

It may be time for India to tell Moscow firmly that it would be pressed to reduce oil imports from Russia if the latter does not accept the payments in Indian Rupee. It is true that a Rupee trade with Russia may lead to a hefty Rupee surplus worth around $40 billion a year with Russia. India could sit with Russia to discuss and formalise how the country could make larger volume of exports to Russia as it did in the early 1970s, when Moscow was by New Delhi’s side to work out a bilateral Rupee-Rouble trade. India’s present oil trade with Russia lacks transparency. Indian citizens and tax payers are in the dark about vital informations about the oil trade with regard to the mode of payments by Indian importers, since the payments in US$ or Euro are banned, and the final landed cost of oil imports from Russia vis-a-vis India’s traditional import bases in West Asia, among others. India must resist the Yuan trap set by Russia presumably at China’s behest. (IPA Service)