Analysis: India reshapes Russian oil trade; market tightens as Moscow eyes China

At the moment, the oil market is riddled with different scenarios, which keep investors on their toes. 

The prospect of India completely stopping Russian oil imports may lead to market tensions and supply mismatch, according to experts. 

Moreover, experts argue, Russia would not be able to find alternative buyers if India stops purchasing oil from Moscow. 

Russian oil imports plummet and market tightens

On Wednesday, the price of Brent crude oil was near $69.70.

Prices rose as global markets closely watched and speculated on whether the recent policy adjustments by the US would successfully deliver the promised economic expansion, Rystad Energy’s Chief Economist, Claudio Galimberti, said.

The rivalry between China and the US over critical minerals is intensifying, even as India yields to pressure from the US administration to significantly curb its imports of Russian oil, he added.

“Markets continue to reward hard flow data over political signaling, with execution – not intent – set to drive the next leg,” Galimberti added.

India is unlikely to fully halt Russian oil imports due to its commitment to maintaining strategic autonomy, according to Rystad Energy.

Russia risks losing crucial market, deepening reliance on China

Consequently, Russia faces the risk of losing a crucial seaborne export market, which could force it into greater dependence on China, Galimberti noted.

This shift is likely to result in weaker realised pricing for Russia as it is compelled to offer deeper discounts to sustain the movement of its oil barrels.

The diplomatic pattern – where the US President claims a win, India’s Prime Minister  adjusts without confirming, and Russia’s President signals continuity – is likely to persist, while flows do the real talking. 

According to experts, oil prices have shown recent strength partly due to the fact that India was moving away from Russian oil imports.

This is likely to happen as part of the bilateral trade agreement with the US.

The 25% punitive tariff that US President Donald Trump had imposed on India six months ago, specifically due to India’s procurement of Russian oil, has now been lifted.

“Sources close to refineries and to trading report that Indian refineries will no longer purchase Russian oil for delivery in April,” Carsten Fritsch, commodity analyst at Commerzbank AG, said in a report.

Most refineries are no longer buying Russian oil, though some will still accept delivery for March, Fritsch added.

The oil market is likely to tighten significantly as a result.

India will need to find alternative sources for the 1.1–1.2 million barrels per day of oil that it had been importing from Russia, a volume that was consistent through December.

Flows of oil had started to change in October itself.

Indian refiners significantly reduced their reliance on Russian crude, with imports plummeting by approximately 800,000 barrels per day since October, Rystad Energy’s data showed. 

This sharp decline is due to a shift towards more diverse sources, including Middle Eastern, African, and Latin American oil.

Can Russia find new buyers?

While a complete cessation is improbable given New Delhi’s commitment to strategic autonomy, the overall trend is clear.

Russia risks losing a crucial market and becoming more reliant on China, accepting increasingly substantial discounts.

“The question is whether Russia will find other buyers. The only real option is China, but it has also recently reduced its purchases of Russian oil slightly,” Commerzbank’s Fritsch said. 

A significant expansion of purchases is therefore difficult to imagine. Russia will therefore have to grant substantial price reductions and rely even more heavily on ships from its shadow fleet.

The EU Commission’s 20th sanctions package is set to completely prohibit tankers from EU countries from transporting Russian oil.

Previously, this transport was allowed, provided the price of Russian oil remained below the $44 per barrel price cap.

The future export of Russian oil will be affected as it will no longer be possible to utilise tankers from Greece, Cyprus, and Malta, which were previously employed for this purpose.

At the same time, the EU Commission has proposed adding an additional 43 vessels from Russia’s “shadow fleet” to the sanctions list.

Seizing tankers and escalation risk

Meanwhile, oil prices remain strong on Wednesday, with Brent crude trading just under $70 per barrel.

This is due to ongoing uncertainty surrounding the direction of negotiations between the US and Iran.

Media reports indicate the US administration is weighing the possibility of seizing sanctioned tankers transporting Iranian oil.

This is a clear parallel to the situation observed in Venezuela.

“However, taking similar action with Iran would be escalatory and would likely see the market needing to price in an even larger risk premium than it already is, given the potential for Iranian retaliation,” Warren Patterson, head of commodities strategy at ING Group, said in a note.

It is the potential for retaliation, which is reportedly leaving US officials reluctant to take such action for now.

Despite a significant 13.4 million barrel increase in US crude oil inventories last week, as reported by the American Petroleum Institute (API), the oil market exhibited strength in early morning trading on Wednesday.

The official weekly inventory report by the US Energy Information Administration will be released later on Wednesday. 

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