Ukraine War: India Meets Russian Crude Price Cap?

On their way to New Delhi this month, US officials expressed satisfaction that India it is buying Russian oil below G-7 price ceilings designed to undermine Moscow’s war in Ukraine without disrupting global energy flows.

Market experts, and even some of those involved in energy trading, say it’s not so clear.

Consumption of Russian crude in India was minimal and sporadic before President Vladimir Putin’s forces attacked Ukraine, but has soared since then, becoming a key tool in Prime Minister Narendra Modi’s attempt to combat energy inflation.

However, the structure of India’s oil trade means that the final price you pay includes shipping, insurance and other costs upon arrival at its ports, without a detailed breakdown. That makes it hard to know how much it is really paying Russia and whether it is undermining the goal of limiting Moscow’s revenue from crude sales.

“The reality is that this market has become extremely opaque,” ​​said Vandana Hari, founder of Vanda Insights in Singapore. “It’s almost impossible to get costs from intermediaries.”

uncertainty about how much India pays is part of the confusion surrounding Russian oil flows in general, as trade shifts from the Atlantic basin to Asia and from large traders to smaller entities. And it highlights the hard fight by Ukraine’s allies to enforce or even encourage compliance with the restrictions imposed over the past year.

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India’s oil ministry, commerce ministry and external affairs ministry did not respond to requests for comment.

Since the Modi government never subscribed to the G-7 limit, it is under no obligation to abide by it, as long as it does not use Western insurance or shipping services. And while people familiar with the matter say the government will not break the sanctions, and has asked banks and merchants to adhere to the rules, the challenge lies in monitoring or enforcing such votes.

For example, to supply buyers in places like India and China, which remain dependent on Russian crude, a “grey fleet” of tankers has emerged.

That helped reduce the costs of transporting crude oil in general, according to Viktor Katona, principal analyst at Kpler. But the rise of the gray fleet and other middlemen in the Russian oil trade makes dissecting price data even more difficult, and official figures are of little help.

Data from the Indian Ministry of Commerce shows that the national average price of Russian crude in January was $79.80 a barrel, significantly higher than the $60 ceiling. That final price, which includes shipping, insurance and other expenses, would imply extraordinary logistics costs if the cap is not exceeded during that month.

The difference between the landed price — the cost when the oil arrives at the port — and the free-on-board price, which does not include shipping, insurance and other ancillary fees, is the crux of the problem. Also, India often insures its oil after it is in transit, after it has left Russia and adding to the complexity of determining the original price.

According to the two companies that have long published Russian oil prices, Argus Media Ltd., whose data has for years determined the export duties Moscow gets from sales abroad, and S&P Global Insights, best known for For traders like Platts, the price paid at the point of export is well below the ceiling price.

Argus data from late February showed the export price for Urals, Russia’s flagship grade and the variety India is actually buying, was hovering around $45 a barrel. Platts, which has assessed it at similar levels, also publishes an Indian delivered price for the Urals grade. That price, which includes shipping costs, has been above $60 a barrel since January 18, when Platts launched it, and stood at $64.31 on March 10.

If correct, those analyzes are good. news for the Biden administration, which is eager for big emerging nations to back its efforts to block the Russian war machine and ensure uninterrupted flows.

A US government official, who asked not to be named due to the non-public information, said that FOB prices published by Argus Media and Platts are considered the best indicators of Russian revenue and that the data is consistent with what the Treasury heard anecdotally, although it recognized the opacity of the situation.

But then there are recent purchases by Indian refiners of Russian ESPO crude that is loaded from the Far East and trades at a price above Ural flagship blend, according to Asian traders, suggesting that higher values tall are not out of the question.

Another group of researchers who had access to Russian oil export billing data estimated that Indian companies paid an average of $64 per barrel for Russian oil in the weeks after the start of the price cap.

Refinery officials in India, who asked not to be named discussing sensitive issues, offered no explanation for how precise compliance with a $60 cap would be established. Based on delivery price, one official noted, it simply isn’t possible. be sure of the purchase price.

The turbidity in the market helps both sides.

While the US and its allies say they believe India is under-buying, they would still be loathe to criticize Delhi. No government wants to alienate the world’s most populous nation which, despite the dynamics of the war in Ukraine, is seen as a critical state in rising US-China tensions.

On Tuesday, a US official said that most of the Russian seaborne oil, about 75%, is being traded without the use of Western services. And the official, Treasury Undersecretary Ben Harris, said that while some “subversion” of the price cap was likely taking place, he said data from Russia’s Finance Ministry shows that revenues for Moscow have fallen.

For now though, uncertainty threatens to slow buying as executives at Indian refineries and banks wrestle with additional information required due to sanctions and price caps. That’s because even if India is not part of the price cap, its banks and other companies want to avoid the possibility of breaching the sanctions.

The looming question in the coming months is whether the Western approach will last. Will Washington and its allies try to tighten sanctions against Russia as the war enters its second year, or opt for a more laissez-faire approach in favor of ensuring continued flows?

“They are trying to adapt carrots and sticks,” said sanctions expert Maria Shagina of the International Institute for Strategic Studies, explaining US claims about compliance and avoiding prosecution. “It is impossible to have it tight. It’s about the scale of the leak.”