Russia oil discount to India shrinks to $4, delivery charges remain opaque

Since the Ukraine war, India has benefited from steep discounts on Russian crude oil, but the shipping rates charged by Russia-arranged entities remain high and opaque, according to sources. Russian oil is billed to Indian refiners at just below the $60 per barrel price cap imposed by the West, but shipping costs are between $11 and $19 per barrel, twice the normal rate. This is significantly higher than rates for comparable distances from other regions.

Following the Ukraine invasion, European buyers and some Asian markets shunned Russian oil, leading to discounted prices. Indian refiners, now the largest buyers of Russian oil due to demand issues in other markets, have ramped up purchases to capture the discounted oil. However, discounts have been shrinking as refiners negotiate deals with Russia separately. If refiners negotiated together, larger discounts could have been achieved. Indian Oil Corporation is the only company to have entered into a term deal, while other refiners continue to buy on a tender basis. Before the Ukraine invasion, India imported a relatively small amount of Russian crude. Now, Indian purchases of seaborne crude from Russia have surpassed those by China.

India buys oil from Russia on a delivered basis, with Moscow arranging shipping and insurance. Although the invoicing for oil is around $60 per barrel, the shipping and insurance rates are determined by three agencies that cannot be independently evaluated, making them opaque. The actual sale price of Urals crude is about $70-75 per barrel, with a large portion of revenues going to these agencies. The G7 imposed a price cap of $60 per barrel on Russian oil in an effort to limit Moscow’s ability to finance the war in Ukraine.

According to sources, Russia is setting the price of oil in its invoices at USD 60 or lower in order to include the cost of shipping and insurance. The Baltic Exchange, a London-based clearinghouse for the shipping industry, used to provide standardized benchmarks for shipping costs through its TD6 and TD17 indicators. However, since late 2022, Russian crude is no longer sold in Rotterdam and Augusta, and the Baltic Exchange no longer lists TD17. Furthermore, the TD6 indicator has been modified and may not be applicable to Russian cargoes. Additionally, the cost of a single voyage is not transparent due to the booking of additional tankers on a time charter basis, which is not facilitated through Baltic Exchange shipping brokers.

As a result, there is a lack of information regarding the actual costs. In May 2023, only 46.3% of Russian oil-loaded ships were insured in the EU, G7, or Norway, compared to 78% in February the previous year. Despite this decrease, these countries still continue to provide tankers for shipping Russian oil. In May 2023, more than 28% of oil tankers transporting Russian oil originated from the EU, G7, or Norway, which is a decline from 58% in the pre-war era. UAE-registered tankers accounted for 37% (compared to 13.4% in the pre-war era), and 12.3% came from China, including Hong Kong. The origin of the remaining 22% is unknown.