Gulf Oil Bargains Lure India Away from Russia

SUBSCRIBE SEARCH ARTICLES NEWS Indian refiners are increasingly turning to Persian Gulf crude and pulling back from their mainstay supplier Russia. Image by Oleksii Liskonih via iStock

Indian refiners are increasingly turning to Persian Gulf crude and pulling back from their mainstay supplier Russia, as sky-high freight costs erode the economics of long-haul shipments.

Some Iraqi cargoes are being sold at discounts of more than $25 a barrel to the Dubai benchmark before shipping, according to traders involved in the talks. On a delivered basis, that translates into discounts of several dollars a barrel to Dated Brent. Russian crude, by comparison, is being offered at about a $2 premium to the benchmark, making purchases from India’s biggest supplier uneconomical, the traders said, asking not to be named discussing commercially sensitive information.

“Cargoes from Russia have significantly reduced due to their commercial viability” in November, state-owned refiner Bharat Petroleum Corp.’s Chief Financial Officer Vetsa Ramakrishna Gupta said on an earnings call on Monday. “Due to the increase in freight, we are not getting good offers from Russia.”

The shift extends beyond Iraq. Saudi Aramco’s trading arm recently sold some prompt-loading Khafji crude at discounts of as much as $10 a barrel to the Dubai benchmark, while Abu Dhabi National Oil Co. sold about 20 million barrels of crude earlier this month at a small discount.

The reversal is reshaping India’s crude trade almost eight months into the war. It threatens to unwind trade patterns established after Russia’s invasion of Ukraine, when India emerged as a crucial buyer of Moscow’s barrels as European customers pulled back.

Oil flows from the Middle East have recovered to near prewar levels despite the recent increase in attacks on ships, as the economies heavily dependent on crude revenue push to keep exports moving. Meanwhile, Russian shipments are dwindling, while soaring freight rates have made the longer journey to buyers such as India increasingly costly.

Gulf producers struggling to move their crude are offering discounts deep enough to offset the “astronomical” freight rates, Hindustan Petroleum Corp. Chairman Vikas Kaushal told analysts on a conference call Friday.

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Russia remains the top supplier for the world’s third-biggest oil importer, but the changing economics are eroding its share. Bharat Petroleum sharply cut purchases from Moscow in October because the crude was no longer economical, according to the traders.

November imports from Russia are lower than supplies from the Gulf, which are more commercially viable, BPCL’s Gupta said. Larger rival Indian Oil Corp. and Mangalore Refinery and Petrochemicals Ltd. have also reduced purchases of Russian crude.

The processors are also taking greater control of shipping costs by chartering their own tankers to sail into the Gulf and lift Iraqi crude. Russian barrels, by contrast, typically arrive at Indian ports on a delivered basis, giving buyers less control over freight, the people said.

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