Latest sanctions on Russia may cut off access to discounted crude

Govt hopes there will be no shortage, no disruption for 6-8 weeks, say official sources

The spate of latest sanctions on Russian oil and gas entities by the US may cut off India's access to discounted Russian crude oil and force it to buy at market prices, official sources said on Monday. There may not be an immediate disruption, as volumes already in transit would take 6-8 weeks to reach India.

 

"There is no direct impact on us (India). The indirect impact is that the discounts on Russian crude oil that we were getting so far may stop. In that case, we have to buy at market prices. That's the worst case scenario," a senior official source said.

 

The administration of outgoing US President Joe Biden on Friday unveiled the broadest package of sanctions yet on Russia, targeting oil producers, tankers, intermediaries, traders, and ports. The US Treasury slapped sanctions on upstream oil and gas majors Gazprom Neft, and Surgutneftegas. Importantly for India, the US has sanctioned 183 vessels that have shipped Russian oil, some of which may have been carrying crude oil to India, as well as one of the major Russian insurance producers.

 

While the financial burden may rise, the government doesn't expect a shortage of oil or disruption in flows to India, at least in the next two months. "This period is a window for producers as well as buyers to work out alternative arrangements. One can only speculate, but there may be a producer or buyer willing to sell to us at below price cap," the source stressed.

 

Meanwhile, oil prices have also risen. Brent Last Day Financial prices rose to $81.23 per barrel at the time going to the press, up from $79.68 per barrel at the end of Friday. However, the government is monitoring the prices, and feels there remains a chance for global oil prices to fall in the coming days. "The market is still digesting what these (latest sanctions) mean. Things are evolving, and it is still early days to gauge the impact of the sanctions," the source said.

 

No shortage yet

 

India is hopeful of securing higher crude volumes from other producers. "We are also seeing additional production coming into the market. Opec (Organisation of the Petroleum Exporting Countries) also has spare capacity. Outside Opec, there is Guyana, the US, Canada, Suriname, and other countries which are in a position to supply," the source said.

 

Russia remains the largest source of crude oil for India for nearly two years now. As of December 2024, Russia remained the largest source of crude oil for India, supplying 31 per cent of India’s total oil imports. This was the second consecutive month of decline in share for Russia, which accounted for 39 per cent in October, according to estimates made by London-based commodity data analytics provider Vortexa, which tracks ship movements to calculate imports.

 

New Delhi is also keeping its eyes on the regime change in the US, with President-elect Donald Trump taking charge on January 20. A possible action of the new President may be to tinker with the existing $60 per barrel price cap.

 

From December 5, 2022, the Group of Seven (G7) — the US, Canada, France, Germany, Italy, Japan, and the UK — has prohibited Western shipping and insurance companies from dealing in Russia crude oil sold at or above a $60 cap. This was implemented concurrently with a separate ban on Russian seaborne crude and refined shipments by the European Union (EU) nations.