The decision by the US and the UK to ban imports of crude oil from Russia in phases has opened up a huge opportunity for India to look at importing crude oil from the country at lower rates. On March 8, Russian Ural crude was trading at a discount of $24 a barrel to Brent crude in Western European markets .
State-run oil marketing companies (OMCs) want the government to set up a payment mechanism similar to the one instituted in 2018-19 to pay for Iranian crude oil, as Tehran came under US sanctions.
“It is an opportunity to build inventories for next three months at low costs, in order to prepare for a period when the current inventory gains could deplete if spot prices still hover above $100 per barrel,” said a senior OMC official, as reported by Financial Express.
Large insurers have refused to insure vessels carrying Russian crude after the economic sanctions on Russia by the US and its western allies that resulted in a sharp drop in Russian crude price. The gap between the Brent price and Russian crude has widened in the past week.
“If government works out a mechanism similar to Rupee-Rial trade we had with Iran in 2018-19, it would become easier for oil companies to import from Russia in the current situation,” the OMC official said. Awaiting a formal government directive on importing Russian crude, OMCs are sufficiently backed by crude from Middle East and Latin America. India used to meet about 10% of its oil requirements from Iran till US sanctions were imposed in 2018 after the nuclear deal between US and Iran was called off.
Following the sanctions, India and Iran entered into a Rupee-Rial trade agreement, under which India imported oil from Iran using a rupee-based payment mechanism where 50% of the payment towards oil imports will be earmarked for clearing the payments due to the exporters of other goods from India. In FY19 India imported around $13.52 billion worth of oil from Iran out of its total crude oil import of $111.9 billion. Imports from Iran has since stopped.