Introduction
Russian oil suppliers have been forced to slash prices in India due to Western sanctions. The European embargo and price cap have increased competition, compelling Russian producers to seek alternative markets in Asia.
Indian Market
India has become a major importer of Russian Urals crude oil. In December 2022, India purchased Urals at prices significantly below the G7 and EU’s $60 per barrel price cap. Reuters reports that Russian oil was sold with substantial discounts, even below production costs.
Competition and Price Cuts
Russian oil producers face fierce competition from Asian, European, and Middle Eastern suppliers. To attract buyers, they have resorted to significant price reductions. Urals prices in Indian ports have fallen by $12–15 per barrel compared to the monthly Brent average in December, according to market sources. In October and November, discounts ranged from $5–8 and $10–11 per barrel, respectively. Industry sources reveal that in some cases, the discounts are pushing prices below the total cost of production.
Shipping Costs
Western port tanker freight rates have surged due to a shortage of vessels equipped for winter conditions. Freight rates have increased to $11–19 per barrel of oil from less than $3 per barrel at the beginning of the year. Reuters estimates that Urals discounts in Western Russian ports for sales to India have reached $32–35 per barrel, excluding freight costs.
Brent Price and Production Costs
Brent crude prices hovered below $80 per barrel in early December. The estimated production cost of Russian oil, including extraction, taxes, and transportation, ranged from $15–45 per barrel.
Indian Imports and Transportation
India, Asia’s second largest oil consumer after China, is geographically closer to Russia, making transportation costs lower. Indian refineries are well-suited for processing Russian crude. India also recognizes Russian vessels and insurance, which are not accepted in Europe.
Urals shipments to India increased to 3.7 million tons in November, accounting for 53.2% of the total seaborne exports. Russia surpassed Iraq to become India’s largest supplier of crude oil in November.
Western Response and Russian Countermeasures
The G7, EU, and Australia agreed on a $60 per barrel price cap for Russian oil. The cap was implemented on December 5th along with an embargo on Russian oil imports by sea. In response, Russia is considering imposing fixed export prices or a maximum discount to Brent.
