India still wants a discount on Russia oil

India has not purchased premium grades of Russian oil, including ESPO and Sokol, for the past two months. Despite the expectations of a collapse in Russian exports, this has not occurred. Instead, India is negotiating for additional preferences from Russia due to the decreasing discount on Russian oil. It remains to be seen whether Delhi will be successful in its bargaining efforts.
Additionally, it should be noted that India has not purchased Russian ESPO premium grade oil from the port of Kozmino for two months. This is a grade for the Eastern Siberia - Pacific Ocean (ESPO) oil pipeline. Historically, ESPO oil has been popular with China, which consumed an average of 800 thousand barrels per day in 2023. However, since 2022, India has also begun to purchase this type of Russian oil. In 2023, purchases increased from 60 to 95 thousand barrels per day.

However, according to Kommersant, India has now suspended purchases of both ESPO grade and Sakhalin Sokol oil. Since December 2023, India's purchases of Russian oil have decreased. It is unclear why India has stopped buying certain types of Russian oil. It is possible that this decision was made due to concerns about potential American sanctions.

India is currently negotiating with Russia for an additional discount, citing the new US sanctions against several tankers as a bargaining chip. According to Igor Yushkov, an expert at the Financial University under the Government of the Russian Federation and the National Energy Security Fund.
The US does not count on the fact that the sanctioned tanker will no longer operate or that the price ceiling will suddenly work. When the US imposes new sanctions, their goal is not to stop the supply of Russian oil, as this would lead to shortages on the world market and higher prices, which would also harm the United States as a net importer of oil.

Instead, the aim is to increase the cost of exporting Russian oil. By providing buyers with reasons to negotiate more favourable prices or by giving tanker owners reasons to increase freight costs, even if they own

a tanker within the shadow fleet, the United States does not agree with India on this matter. However, the United States is attempting to cooperate with India in their negotiations with Russia, according to the FNEB expert.

Experts believe that India is unlikely to be able to negotiate any additional preferences for itself. “Discounts now range from 7-10%, compared to 17-20% at the end of 2022. According to Sergei Grishunin, managing director of the NRA rating service, this is due to the products being tested and an increase in methods for circumventing sanctions.”
India is unlikely to succeed in persuading Russia to lower prices for premium grades of oil below the established ceiling of $60 per barrel. These varieties have never traded below the ceiling and are in high demand in the Asia-Pacific region. According to Vladimir Chernov, an analyst at Freedom Finance, ESPO grade oil has a very low sulfur content of less than 0.6%, while the Russian export grade Urals contains twice as much, at 1.2-1.4%. This information is global in scope.

According to the author, redirecting 'Indian' volumes to other Asia-Pacific countries or China would be easier for Russia than offering high discounts on premium grades of oil. Additionally, China's consumption of petroleum products is expected to increase this year as the economy recovers from the COVID-19 pandemic.

It is worth noting that India competes with China for ESPO oil. Yushkov notes that India has been purchasing the Russian Urals grade in large volumes, which were previously sold in the European market. Additionally, ESPO oil was initially intended for China, but in 2022, India also began to purchase it periodically when China was less active due to coronavirus restrictions. However, at the beginning of 2023, Beijing lifted the restrictions.

During the price negotiations between India and Russia, China intervened and acquired the oil. Although India's purchases of ESPO and Sokol oil have decreased, this has not affected Russia's oil exports.

The redirected volumes were sold to other markets without any issues. In the end, all oil finds a buyer. The source stated that India may increase purchases of these types of fuel in the future.

They also expressed their opinion that the Western media is exaggerating the disaster, possibly to prove that Russian oil exports have collapsed. However, the expert believes that this is not true, as prices would have already surged to $100-120 per barrel, as was the case in the spring of 2022 during a period of uncertainty.
Statistics indicate that China and India remain the largest buyers of Russian oil, with China occasionally purchasing more in one month and India in another.

According to S&P Global, India was the largest buyer of Russian oil transported by sea in January, while China took the lead in February, slightly surpassing India. It is normal for such an exchange of places to occur. The two countries now purchase approximately the same volumes of oil. India has not shown any indication of refusing to buy Russian oil. Russia still considers India as one of its top trading partners in the oil industry. However, trading volumes and prices may fluctuate over time,” according to Igor Yushkov.
India's attempts to negotiate a discount are complicated by the rising oil prices. The country is not seeking an additional discount, but rather wants to maintain the existing one, which is currently at 8-10 dollars per barrel. Yushkov believes that a global increase in oil prices will make India more accommodating towards Russia.

In 2022, India capitalised on the geopolitical situation and started purchasing oil from Russia in large quantities for the first time. This resulted in almost all of the 'European' oil being redirected to India. The purchase of cheaper Russian oil has increased profits for India. India has established a significant crude oil refining industry through its coastal refineries. It exports the resulting petroleum products, generating income. Using cheaper raw materials can increase profits from selling the finished product.

However, experts predict that discounts will soon become obsolete, possibly within two years. Grishunin predicts that in the future, it will be challenging to find legally sourced oil from Russia. Additionally, high-quality oil supplies are becoming scarce worldwide, especially due to the green agenda and reduced investments in geological exploration by leading energy companies.