Following US sanctions on two Russian oil producing companies, Indian refineries may increase their purchases of crude oil from West Asia, Latin America and the US to compensate for the decline in crude oil imports from Russia. The US government imposed sanctions on Russia’s two largest crude oil producers, Rosneft and Lukoil, on October 22. This ban has barred all US entities and individuals from doing business with these companies. Non-US companies that transact with sanctioned Russian oil companies or their subsidiaries could also face penalties.
All existing transactions must be completed by 21st November
The US Treasury Department has said that all existing transactions involving Rosneft and Lukaoil must be completed by November 21. Currently, Russia accounts for about one-third of India’s crude oil imports. Russia has exported an average of about 1.7 million barrels of crude oil per day to India this year, of which about 1.2 million comes directly from Rosneft and Lukoil. Most of this oil was bought by private refineries Reliance Industries Limited and Nayara Energy. The share of government refineries is very less.
Reliance may be the first Indian company to stop importing crude oil from Russia
Kpler’s principal research analyst (refining and modeling) Sumit Ritolia said that till November 21, crude oil imports from Russia are expected to be between 16-18 lakh barrels per day, but after that there may be a decline in direct imports from Rosneft and Lukoil. Obviously, Indian refineries want to avoid any risk of US sanctions. Reliance Industries, which has a 25-year contract with Rosneft to buy up to 5,00,000 barrels of crude oil per day, could be the first company to stop importing oil from Rosneft, sources said.
Nayara Energy has little choice
With supplies from elsewhere dwindling due to EU sanctions, Nayara Energy has little choice. The company is currently completely dependent on Russian oil. “Nonetheless, refineries will continue to receive Russian-grade oil through third-party intermediaries, but this will be done with extreme caution,” Ritolia said. To compensate for the decline in direct imports from Russia, Indian refineries may increase purchases from West Asia, Brazil, Latin America, West Africa, Canada and the United States.
India’s import bill will increase
Prashant Vashishtha, senior vice president and co-group head, corporate ratings at ICRA Ltd, also expressed similar views, saying the move away from Russian oil will increase India’s import bill. “US sanctions imposed on some Russian crude producers are likely to impact India’s oil purchases as these suppliers account for about 60 per cent of total purchases,” he said. He further said, “Although India can replace Russian oil with crude oil from West Asia and other geographies, the crude oil import bill will increase.” Vashishtha said that buying crude oil at market price instead of Russian oil will increase the import bill by a little less than two percent on an annual basis.