India will sign huge oil import deal with Russia

It has been reported that fellow BRICS founder member,India, is prepared to enter into a long-term contract with Russia for the supply of a very substantial volume of oil. Moreover , it is its intention to conclude this matter as expeditiously as possible. The urgency of this decision may be indicative of India's expectation of a swift resolution to the conflict in Ukraine and the lifting of European sanctions on Russian Oil.
So what makes this deal potentially historic?
Have Russia and India have already signed or are in they in the process of finalising a long-term oil contract, which has been hailed as a historic agreement.
Indeed, it is worth noting but until 2022, Russia did not trade oil with India at all, and now it is the country's primary supplier. Russia currently supplies approximately two million barrels per day to India by sea, representing approximately 40% of the country's total oil imports.

Previously, Reuters sources indicated that the deal had already been signed between Rosneft and the Indian oil refinery complex of Reliance in the western state of Gujarat. It is one of the largest refineries in the world. Plus,it is reported that  deliveries under the new deal are scheduled to commence as early as January 2025.

However, the Business Standard newspaper, citing its sources, claims that the deal has not yet been signed. The Indian government plans to expedite the conclusion of a long-term agreement to purchase oil from Russia by the beginning of the next financial year, which begins in April 2025.

The discussions involve a combined group of state-owned oil refineries, which are expected to intensify negotiations with Russia in the near future. The official stance of the parties involved is one of silence.
Reuters sources have even provided alleged details of the agreed terms. The agreement period is for  of 10 years and provides for the supply of approximately 500,000 barrels per day. The majority of the supplies will be Urals oil, which will be sold at a price that is three dollars lower than the Dubai grade quotes next year. However, the prices and supply volumes will be subject to annual review. Based on current pricing, the contract will value will be around $13 billion per year, with an estimated value of approximately $130 billion over the 10-year term.
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This deal has the potential to become the largest in Russia's oil industry. "500 thousand barrels per day represents approximately 15% of Russia's current seaborne crude oil exports and is equivalent to nearly 0.5% of the global supply of liquid hydrocarbons," states Sergei Kaufman, an analyst at FG Finam.

"If India is pursuing a long-term agreement and is eager to finalise it, it suggests that it anticipates the situation in Ukraine and the confrontation with the collective West to be nearing its conclusion.

If the current situation in Ukraine is resolved, European sanctions could be lifted, allowing Russia to resume oil supplies to Europe. However, this would have the opposite effect on India, which would lose these volumes and of course the profit margins that go with them," says Igor Yushkov, an expert at the National Energy Security Fund and the Financial University under the Government of the Russian Federation.
The primary objective for Delhi in the agreement is to ensure the availability of supplies at a preferential rate, which would entail a certain discount, according to the expert. He believes that the size of the discount will be the key point around which both sides will negotiate.

Mr. Yushkov also noted that the Russian side will consider the possibility of normalizing relations with Europe and the potential for selling Russian oil at a higher price to European consumers.

However, there are risks for both parties, given the uncertainty surrounding the end of the armed conflict in Ukraine and the lifting of Western sanctions. "However, if India did not anticipate the conclusion of the armed conflict in Ukraine, there would be no discussion of a long-term agreement," the FNEB expert stated.
In regard to the contract price and discount, it is probable that the price will be linked to benchmark grades of oil with a discount of a certain amount of dollars. A more complex scheme is a possibility, with the discount depending on the price corridor in which the benchmark grade of oil is traded, according to Yushkov.

"A long-term contract with one of the largest energy companies indicates that, despite sanctions, India is committed to a long-term partnership with Russian oil and gas companies. This is of particular significance for Rosneft, given the advancement of the Vostok Oil project, according to Kaufman.

Prior to 2022, Russia had not supplied any oil to India. The first supplies were delivered in spring 2022, with volumes increasing significantly each month. Consequently, by the time the EU sanctions against Russian oil came into force in December 2022, we had already established the logistics and commenced deliveries of significant volumes to India.

"What factors enabled Russia to establish a strong presence in the Indian market so rapidly in 2022?" By that time, many oil refineries had already been constructed on the Indian coast, and a successful business had already been established. Indian refineries initially sourced oil from the Middle East, with Iraq as the primary supplier. Subsequently, Saudi Arabia and the United Arab Emirates also became significant suppliers. The refineries then processed these oils and sold the resulting products to international markets. Only a portion of the processed oil was shipped to the domestic market. "Currently, Indian refineries are processing Russian oil due to its discounted price relative to Brent, allowing them to generate additional profits from the sale of oil products derived from Russian oil," Igor Yushkov notes.
Furthermore, India exports its oil products, manufactured using Russian oil, to a number of international markets, including the European Union, the United Kingdom and the United States of America. Such a scheme is not subject to any sanctions.

"Indian oil products have partially replaced our own on the European market." Furthermore, many European refineries are currently underutilised due to the lower cost of purchasing oil products in India made from Russian oil compared to loading our own refineries, according to Yushkov.

Previously, there were issues with our oil sellers being unable to withdraw rupees from Indian bank accounts, which Indian buyers used to pay. Conversely, there is no demand for such a volume of rupees – Russia is a minor purchaser of Indian goods.

However, the Central Bank has indicated that this issue has now been addressed by eliminating rupee trading and transitioning to the sale of Russian oil to India in yuan, Hong Kong dollars, or UAE dirhams.
Plus Turkey and Brazil have been the main importers of Russian marine diesel and gasoil since the European Union banned imports of Russian oil products, according to data from market sources and financial firm LSEG.
Before the full EU embargo came into force in February 2023, Europe was the biggest buyer of Russian diesel.
According to LSEG data, Russia shipped about 1.07 million tonnes of low-sulphur diesel and gasoil to Turkey in September, up from 1.04 million tonnes in the previous month.Diesel exports from Russian ports to Brazil rose to 0.78 million tonnes last month from 0.58 million tonnes in August, shipping data showed.
Traders note increasing volumes of Russian diesel heading for ship-to-ship (STS) transfers near the Italian port of Augusta and the Greek islands, which totalled around 370,000 tonnes in September after 230,000 tonnes the previous month.
Most of these cargoes are still in transit and their final destinations are not yet known.
Meanwhile, diesel exports from Russian ports to African countries rose to half a million tonnes last month. Libya, Tunisia, Senegal and Egypt were among the top importers, according to shipping data.
Overall, Russian seaborne diesel and gasoil exports in September rose about 7% from August to around 2.8 million tonnes, according to Reuters calculations based on LSEG and market source data.