Recent US sanctions may have muted impact on India’s Russian oil buys, could deepen discounts

Following the development, Indian refiners are now refusing to take delivery of crude transported by Sovcomflot tankers in an evident bid to steer clear of any secondary sanction risk. According to a senior government official, the government does not want Indian refiners to brazenly flout the G7 price cap or get involved in trades that might have sanctions-related risks.

“India’s import of Russian crude averaged slightly below 1.4 mbd (million barrels per day) so far in Q1 2024 (January-March), down by nearly 600 kbd (thousand barrels per day) from the peak quarter in Q2 2023… This is clearly linked to commercial and logistical hiccups, with payment issues and tanker sanctions playing a role,” Vortexa said in its latest report on Russian oil trade.

Indian refiners’ reluctance to accept crude on Sovcomflot tankers in the future “underpins the impact of US/Western sanctions”, Vortexa said, while noting that the share of crude on Sovcomflot-linked tankers has already come down drastically over recent months.

“An alternative explanation for lower flows to India is the potential push for compliance with the price cap, while sellers are likely to seek for outlets that accept higher but still substantially discounted prices… Ultimately Russian oil will continue to hit markets, but potentially at growing discounts,” Vortexa said.

While a lot of crude deliveries on Sovcomflot tankers are now shifting to China—the other big buyer of Russian crude—the massive so-called opaque fleet of tankers involved in Russian oil trade is likely to keep Moscow’s oil flowing to India.

“India (is) more risk-averse than China but large opaque fleet suggests minimal impact to both markets from US sanctions,” Vortexa said.

Broadly speaking, the opaque tanker fleet refers to vessels of unclear ownership involved in crude oil and petroleum products trade of suppliers under sanctions or restrictions of various degrees from international powers, particularly the US. With major Western fleet operators loath to get involved in the oil trade of these countries, little-known operators from countries like Greece, Turkey, Russia, and tax havens like Marshall Islands, Liberia, and Panama have emerged as the key players in the so-called shadow fleet network.

A large number of opaque fleet tankers have complex and obscure ownership structures and are registered in geographies with lax regulatory oversight. Often, such vessels, which are usually quite old, operate with substandard insurance and certifications.

The true extent of the shadow fleet operation with regard to Russian oil trade can be ascertained from the fact that of the 493 tankers that supplied Russian oil to India since January 2021, just 6 per cent are now under US sanctions, underscoring the ample availability of tankers.

Indian refiners ramped up Russian oil purchases in the aftermath of Moscow’s February 2022 invasion of Ukraine. As the West started weaning itself off Russian energy supplies, Russia began offering deep discounts on its crude oil, which Indian refiners began lapping up. Prior to the war in Ukraine, Russia was a marginal player in India’s oil imports, but is now New Delhi’s biggest source of crude ahead of traditional heavyweights Iraq and Saudi Arabia. India has a highly diversified crude oil supplier base that would help in keeping supply steady even if some of the volumes coming from a major supplier see some disruption.