Russian oil and gas look to Asia
Indian Prime Minister Narendra Modi said protecting the country’s energy security was vital and that there should be no restrictions on energy supply.
India bought increasing amounts of cheaper Russian oil, and Chinese imports of Russian oil also increased following the Russian invasion of Ukraine.
How much Russian oil goes to Asia?
India and China are currently the biggest buyers of Russian crude oil.
Indian imports of Russian oil soared from a very low level at the start of the year peaking in June and July and largely maintaining those levels through October.
China’s purchases of Russian oil have fluctuated this year, declining in February at the start of the Russian invasion of Ukraine, but then increasing significantly in the following months.
Russia has been selling oil at a reduced rate since March this year after the invasion of Ukraine.
In March, China and India’s combined oil imports from Russia surpassed those of the 27 EU member states.
Other countries have also benefited from discounted Russian crude – for example Sri Lanka, which is struggling with a severe economic crisis.
Cheaper oil boosts inflow to Asia
Following its invasion of Ukraine, Russia had fewer buyers for its Urals crude oil as some foreign governments and companies decided to avoid its energy exports, and its price began to decline.
At one point earlier this year, Russian Urals crude was more than $30 a barrel cheaper than Brent crude (the global benchmark).
At the end of September, it was around $20 a barrel cheaper.
The Indian government has defended its purchases from Russia, saying it must source oil from where it is cheapest.
The US government had criticized these purchases, although it is now clear that it accepts that India can continue to buy Russian oil at a discount.
The G7 group of major economies – the UK, US, France, Germany, Japan, Italy and Canada – proposed a plan to cap the price of Russian oil in order to minimize the revenue generated from it.
But it is not yet clear what impact this could have on countries like India and China which are already buying Russian oil at a discount.
Moscow has said it will stop selling to countries that join in this attempt to impose price caps on its crude exports.
In addition, in December, the EU is to completely halt Russian oil imports by sea as part of the measures against Russia after its invasion of Ukraine.
What is the impact of the sanctions against Russia?
Although the price of Russian crude oil is attractive, Indian refineries have faced a challenge trying to finance their purchases as sanctions against Russian banks affect payment transactions.
One of the options India is considering is a system based on local currencies, in which Indian exporters to Russia are paid in rubles instead of dollars or euros and imports are paid in rupees.
Chinese state-owned oil companies are increasingly using the Chinese renminbi rather than the US dollar to fund their overseas oil purchases.
How much Russian gas goes to Asia?
Nearly 50% of India’s total gas needs come from abroad – but this is mainly from the Gulf States and very little from Russia.
“Deliveries of Russian LNG (liquefied natural gas) to India are rare,” says Antonio Peciccia, commodity industry expert at Argus media. “We estimate five shipments so far this year, compared to seven a year earlier.”
China imports most of its gas by pipeline from Central Asia. Currently, Turkmenistan is the largest supplier.
But once a new pipeline, known as the Power of Siberia, is completed later in the decade, Russia could well take over as China’s biggest gas supplier.
And there has been a notable increase in liquefied natural gas (LNG) imports from Russia this year, although most Chinese LNG still comes from other countries.
China has also signed new agreements to transport Russian LNG by sea via the Arctic.
In September, Russia’s Gazprom and China National Petroleum Corporation agreed to use Russian rubles and yuan instead of dollars to make payments for Russian gas.
With additional reporting by Wanyuan Song