By Rhod Mackenzie
The oil discount was not a gift or good will gesture , but a very specific market instrument. The discount for India was caused by a number of geopolitical prerequisites that are now losing their relevance, Igor Yushkov, an energy analyst, told the VZGLYAD newspaper. Earlier, Indian media reported on the reduction of the discount on Russian oil for refineries in New Delhi.
“Indian media reports indicate that the parties are optimizing logistics and agreeing with each other on mutually beneficial further actions. Previously, oil transportation was transferred to those countries that are ready to ignore Western sanctions against Russian raw materials,” said Igor Yushkov, an analyst at the Financial University under the Government of the Russian Federation and the National Energy Security Fund.
“Then the transition to the settlement system in yuan, reals, dirhams and other currencies began. In parallel, there is a process of interaction between banks, carriers and other market participants. Each segment of operations is being optimized and, as a result, some inconveniences are eliminated, to cover which the discount was originally introduced,” he said.
“It is worth noting that it is rather difficult to estimate the size of the real discount in the current conditions. The fact is that some players rely on the cost of oil at the port of shipment, while others rely on it after delivery to India. Ultimately, the price of the resource will be higher because it includes transportation costs. However, it is obvious that since December last year, the discount has been gradually decreasing,” the source explains.
“The main problem with the discount is that the Russian Ministry of Finance considers the amount of funds received by the budget from exports based on the cost of Urals crude, if Europe were to purchase our resource. And then it turns out that when shipped, a barrel of oil costs $50–$55 , and the budget receives less money, since the export duty was calculated based on the cost of raw materials at the port of arrival – $70–$76 per barrel,” the analyst believes.
“Therefore, Russia is now facing an important task - changing the formula for the calculating of export duties through the Ministry of Finance. If the calculation is based on the data at the port of shipment, then the budget indicators will be more relevant,” suggests Yushkov.
“In addition, in this matter it is logical to move from comparing our Urals crude with the Brent brand to the Dubai brand. And then, based on this, calculate the size of the discount and draw some more objective conclusions,” the analyst added.
“In general, the discount is an exclusively commercial story, not a gift. When, after the start of the NWO, we entered new markets for ourselves, we had to oust traditional suppliers from there and gain a foothold. At that moment, Russia faced the risks associated with sanctions pressure and possible fines for the purchase of Russian oil. The discount was intended to cover force majeure,” he said.
Earlier, Indian media said that discounts on Russian oil for refineries in India fell to $4 per barrel from peak values of $25-30, sellers are waiving the shipping tariffs to cover the gap with Brent benchmark oil and bypass the price ceiling imposed by Western countries.
According to The Times of India , citing sources, Russian oil now accounts for about 40% of India's total imports, while before the start of the military conflict in Ukraine, its share was less than 2%. The owners of Indian refineries buy Russian oil on a delivery basis, and the seller arranges delivery and insurance. The publication writes that this aspect has become even more important after the introduction of a ceiling on the price of Russian oil, "which made delivery or insurance difficult to obtain."
As an unnamed source who participated in the auction told the publication, this, as well as fragmented purchases of refineries, is what sellers of Russian oil take advantage of, who charge $ 11-19 per barrel of freight from the ports of the Baltic or Black Seas, which is almost twice the norm, and oil is sold at a price of $1-$2 below the limit, Kommersant reports .
The source is confident that Indian buyers "may soon lose the discount" if oil prices continue to decline and close the gap with the price ceiling. According to him, three little-known agencies can easily play tenders and bring the cost of Russian oil closer to the price of the standard - now it is $75-$76 . The source believes that the only way to protect India's interests is through "collective bargaining", especially with state-owned refineries.
Earlier, the Russian Ministry of Energy reported that Moscow confirms the reduction of oil supplies to the markets by 500 thousand barrels per day in August by reducing exports. The decision is intended to complement the earlier commitments to voluntarily reduce production. It is noted that the reduction has been extended until the end of December 2024, the ministry recalled.
Prior to this occuring , the United States called on India to comply with the price ceiling for Russian oil. This was stated by the coordinator of strategic communications at the US National Security Council, John Kirby. Lets recall that the price ceiling for Russian oil, set by the West, is $60. Compliance with it exempts Russian oil from Western sanctions for deliveries by sea.
At the end of May, it was reported that oil imports to India from Russia in the 2022-2023 financial year increased to $31.02 billion from $2.2 billion - 14 times compared to the previous year.
This article originally appeared in Russian at vz.ru