Russian oil turns to Asia
Asian countries are looking to Russia for cheap oil as global energy prices remain high and Western nations seek to reduce their dependence on Russian energy.
India and China bought most of the oil, according to shipping data.
At the Shanghai Cooperation Organization summit in Uzbekistan, Russian President Vladimir Putin met with Indian Prime Minister Narendra Modi and said trade between the two countries is growing.
Where is Russian oil going?
Although exports to the European Union (EU) have fallen since Russia invaded Ukraine, the bloc is still buying a significant amount – more than a million barrels of oil a day.
However, EU member states have said they will ban all sea imports from December (most Russian oil arrives by sea rather than by pipeline).
India and China have recently become major buyers and now account for more than half of all Russian maritime oil exports.
“India accounts for the bulk of Russian crude flows redirected to Asia,” said Sean Cronin, head of oil analysis at Argus Media.
In March this year, China and India’s combined oil imports from Russia surpassed those of the 27 EU member states in volume.
Indian purchases of Russian oil known as Ural (a blend of crude oil typically exported to Europe) surged early this year.
Indian imports of another Russian crude blend called East Siberia Pacific Ocean (ESPO) have also seen an increase, according to shipping information.
China has been buying larger quantities of Urals and ESPO since March. In early July, it was reported that he had purchased record quantities for the second consecutive month.
In contrast, Japan has made it clear that it will phase out imports of Russian oil, and South Korean imports of Russian crude have fallen.
Myanmar’s military regime recently said it would also start importing from Russia.
Sri Lanka, in the grip of a severe economic crisis, benefits from Russian oil at a reduced price with three shipments.
Cheaper oil boosts inflow to Asia
After its invasion of Ukraine in February, 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 fall.
At one point earlier in the year, Russian crude was more than $30 a barrel cheaper than Brent crude [the global benchmark]. It is now about $20 a barrel cheaper.
In July, Indian imports of Russian oil fell slightly because the price was less attractive compared to Saudi Arabian crude.
The Indian government has defended its purchases from Russia, saying it must source oil from where it is cheapest. We don’t know the exact price India pays for Russian oil.
The US government has acknowledged that it cannot stop these purchases because there are no secondary sanctions against countries that do business with Russia.
It is also unclear whether India or China will follow a plan from the G7 countries (UK, US, Canada, France, Germany, Italy and Japan) cap the price of Russian oil in an attempt to limit Moscow’s revenue from energy exports.
Recently, Ukrainian Foreign Minister Dmytro Kuleba said that “every barrel of Russian crude oil delivered to India contains a fair amount of Ukrainian blood”.
The impact of sanctions
Although the price is attractive, major Indian refiners face a challenge in financing the purchases, due to sanctions imposed on Russian banks.
This is a problem that trade faces both ways.
One of the options India is considering is a local currency-based transaction system, where Indian exporters to Russia are paid in rubles instead of dollars or euros and imports are paid in rupees.
The United States has made its reservations clear about it, saying it could “prop up the ruble or undermine the dollar-based financial system.”
Russia also reportedly demanded payments from India in the currency of the United Arab Emirates, although the trading companies involved did not confirm the report.
And China’s state-owned oil companies are increasingly using the Chinese renminbi rather than the US dollar to fund their overseas oil purchases.
Where else do India and China get oil?
India’s crude oil imports from the United States surged at the end of 2021 and the beginning of this year, but then fell before recovering slightly.
Although India’s imports from Russia have increased, it also buys a large amount of oil from Middle Eastern countries, including Iraq and Saudi Arabia.
China also continues to buy oil from the Middle East as well as Angola and Brazil, although in July Russia remained its top supplier for the third consecutive month.