Discussions on a term deal for crude oil purchases from Russia have ground to a halt in the wake of the latest sanctions on Russia, sources in the Ministry of Petroleum said.
A joint front of state-owned refiners had been discussing the purchase of crude oil from Russia under a term deal. Crude oil from Russia is usually purchased at spot prices, while long-term contracts are reserved for crude from India’s traditional import sources in West Asia. Spot purchases allow refineries to secure different grades of oil that may otherwise be unavailable.
However, last week’s sanctions on Russian oil and gas entities by the United States have put the talks on hold. Official sources have said the government is preoccupied with analysing the sanctions, which may cut off India’s access to discounted Russian crude and force it to buy at market prices. “Any deal in the current geopolitical climate requires careful planning and lengthy discussions so that shipments do not suddenly stop due to sanctions. But the escalating sanctions have complicated the matter,” an official source said.
The government does not expect an immediate disruption in supplies, as volumes already in transit would take six-eight weeks to reach India. That would allow sufficient time for the geopolitical situation to evolve, as US President-elect Donald Trump is set to assume office on January 20, another source said. “This will give our refiners enough time to strike alternative arrangements, with Russia or otherwise. That may change the need for a term deal,” he said.
A term deal would reduce volatility in Russian crude prices and could allow India consistent access to Russian oil at lower prices. India remains prepared to continue purchasing oil from Russian companies permitted to make such sales, as prices are favourable. Petroleum and Natural Gas Minister Hardeep Singh Puri has repeatedly emphasised this point.
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Rosneft deal also in limbo?
Talks on the term deal had gained momentum after Russian state oil firm Rosneft signed a record deal last month to supply crude oil to Reliance Industries (RIL). Pegged at nearly 500,000 barrels per day (bpd), the deal is reportedly the largest energy agreement ever between the two countries. The 10-year agreement, amounting to 0.5 per cent of global supply, is worth roughly $13 billion annually at current prices.
However, sources said the deal was now under a cloud of uncertainty after Rosnefteflot, the marine transportation arm of Rosneft, was hit with sanctions in the latest round of economic measures by Washington, DC. Up to 13 marine vessels owned by the company, including eight Russian-flagged crude oil tankers, have been sanctioned.
As the second-largest Russian company by market capitalisation and one of the country’s highest earners, Rosneft has in recent years sought to increase its presence in the Indian market, officials said. In early December, Russian President Vladimir Putin had said Rosneft had invested $20 billion in India, though he did not elaborate further. Energy ties are expected to be a priority during Putin’s upcoming visit to India, scheduled for early December, according to the Kremlin.
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