By Rhod Mackenzie
India and China have absorbed almost 80% of Russian oil exports, which previously went to Europe. The Asian market has become a key one for Moscow. At first, the raw materials were sold at a significant discount. However, recently the discount for New Delhi has already been reduced by seven times. How this occured is listed below
Indefatigable appetites
Almost 40 million tons of oil and oil products were redirected from Western markets to Eastern markets last year. First of all, India and China.
Russia became the largest exporter of black gold to India in the 2022-2023 financial year. Deliveries increased 19 times - up to 41 million tons, to China - by 28%, up to 89 million.
To gain a foothold in new markets, Asians were given a big discount.
It is no secret that they resell part of the raw materials to the EU. In particular, in February, India bought 90% more oil than usual, then increasing supplies to Europe. So does China. Given the explosive growth in exports to Asia, Russia has kept a close eye on this.
However, the "trial evaluation period" seems to be over.
We started from India. According to the Times of India , citing sources, Moscow has reduced discounts on Urals from almost $30 per barrel in the middle of last year to less than four.
Occupied the market
This is quite understandable. Moscow has firmly established itself in the Indian market, squeezing out competitors.
According to Vortexa, in May, imports from Russia exceeded the combined figure of Saudi Arabia, Iraq, the UAE and the United States: 1.96 million barrels per day, up 15% from April.
This is almost 42% of the local crude oil market - the highest result for a single 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 in the world market, created by OPEC +, also affected. Competition among buyers is intensifying.
“Under such conditions, there is no reason to give large discounts to domestic suppliers: if Indian enterprises do not buy, other consumers, primarily Chinese ones, will do so,” says Leonid Khazanov, an independent industrial expert.
As Aleksey Krichevsky, financial expert, author of the Economism Telegram channel, notes, the discount gradually decreased against the backdrop of OPEC + production cuts and with rising demand in China after the pandemic.
“In addition, American giants — Apple, Tesla, Alphabet and others — are actively investing in India itself, since this is an attractive market for them, including because of the trade war with China. And the increase in investment requires raw materials for building factories and ensuring their smooth operation. That is, more and more oil is needed," he says.
There is one more circumstance: focusing on growing demand, Saudi Aramco raises prices for buyers from the Asian region every month. So they are betting on Russian raw materials.
Established logistics
Analysts also associate the cancellation of the discount with a change in the trading mechanism. Previously, oil was sold at a big discount, plus producers took $11-19 for freight from the ports of the Baltic or Black Seas. The total price for the most popular Urals brand was $58-$59, below the $60 per barrel ceiling set by the G7 countries, explains Nikolay Vavilov, specialist in Total Research's strategic research department.
Now quotes have crept up and competition in the maritime transport market has intensified. Logistical difficulties faded into the background.
“Greek and other European shipowners are no longer afraid of falling under secondary sanctions, 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 cost of freight is reduced,” he clarifies. analyst.
Since February, freight has fallen in price by 35-40%, Marcel Salikhov, director of the Center for Economic Expertise at the Institute of State and Municipal Management (ISMU) of the National Research University Higher School of Economics, told RIA Novosti. The shadow fleet is growing, and the market is gradually adapting to the price ceiling.
Don't care about sanctions
Analysts draw attention to the fact that the sanctions and the price ceiling imposed by the West had practically no effect on exports to Asia. Russia and India transactions are settled in national currencies - all transactions take place without third countries.
Neither American nor European creditors are required to purchase raw materials. In addition, part of the oil is still resold to the same Europe, and at market prices. So all parties earn even after the discount is reduced, Krichevsky notes.
“This will definitely have a positive impact on our budget, but it’s more difficult with the ruble exchange rate. The main difficulty is that rupees accumulate on foreign accounts of exporters, which are quite difficult to sell. If you sell all the rupees of Russian state-owned companies, then the ruble will instantly strengthen by five percent, if not more. Exports will remain at the same level due to the deficit artificially created by OPEC +. That is, the situation of 2020, when there was so much fuel that there was simply nowhere to put it, will not happen again in any case - this requires another pandemic, "the analyst argues.
There is no need to worry about the reduction in oil exports, experts reassure. "The widely announced decrease in the daily production of key players - Saudi Arabia and Russia - has already created a shortage of supply with stable demand and pushed prices up," adds Nikolai Vavilov.
Meanwhile, the cost of Urals with shipment in the port of Novorossiysk on July 12 exceeded $60 per barrel. As Bloomberg notes, if this continues, Moscow will be able to claim victory, proving that Russia is capable of delivering goods around the world without the help of Western companies.