China and India buy Russian crude oil at a 40% discount

European Union again on Friday could not come to an agreement The bloc’s easternmost members, including Poland, Estonia, Latvia and Lithuania, protested that the proposed $60-$70 for Russian crude was too generous and too high, arguing that the price ceiling for Russian oil was too high. The rates at which Russia currently sells crude oil.

Valdis Dombrovskis, the vice-president of the European Commission, admitted this:If you set the price cap too high, it doesn’t really bite. Oil is the largest source of revenue for the Russian budget, so getting it right is critical to really impact Russia’s ability to finance this war.He told Bloomberg TV.

Well, they’re right: offering $70 a barrel for Russian Urals is pretty generous, considering Bloomberg just reported that China and India are buying them at half the price.

according to Bloomberg oil strategist Julian Lee, Russia’s flagship Urals crude traded late last week at a steep discount of $33.28, or about 40%, to international Brent crude. By contrast, a year ago, Urals was trading at a much smaller discount to Brent than $2.85. Urals is the main mixture exported by Russia. The bottom line: Moscow is starting to feel the heat of its war in Ukraine and could lose ~$4 billion a month in energy revenue, according to Bloomberg estimates.

Washington is not losing sleep over it. “If Russian oil is going to be cheap and we are happy with India getting the deal, Africa or China. This is a good,” US Treasury Secretary Janet Yellen previously told Reuters.

Shipping countries such as Greece are in favor of a higher price ceiling to help trade continue. However, with EU sanctions against Russian oil set to kick in on December 5, with expected market disruptions, the situation could become even more difficult for Russia. if there is no price limit. Meanwhile, it is reported that Russia has prepared the presidential decree ban their companies and any traders from selling to anyone participating in the price cap.

Imports from Russia are increasing

Although India used to have to import 80% of its needs, it has never been a big buyer of Russian crude oil. In a typical year, India imports only 2-5% of its crude oil from Russia, about the same as the US did before it announced a 100% embargo on Russian energy goods. Indeed, India imported a total of 12 million barrels of Russian crude oil in 2021, and most of its oil was bought from Iraq, Saudi Arabia, the United Arab Emirates and Nigeria.

But back in May, there were reports of a “significant increase” in the supply of Russian oil to India.

according to Bloomberg report, India spent a good $5.1 billion on Russian oil, gas and coal in the first three months after the invasion, five times the price a year ago. However, China remains the largest buyer of Russian energy commodities, spending $18.9 billion in the three months to the end of May, almost double the amount from a year ago.

And it’s all about money.

According to the International Energy Agency (IEA), Urals oil has been offered at record discounts since the start of the war. In the first months after the war broke out, Ellen Wald, president of Transversal Consulting, told CNBC that several commodity trading firms—such as Glencore and Vitol – They offered discounts of 30 and 25 dollars/barrel for the Urals blend, respectively.

Experts say simple economics is the biggest reason why the White House’s pressure to curb Russian crude purchases is falling on deaf ears in Delhi.

“The Indian government’s motivation today is economic, not political. India will always seek compromise in its oil import strategy. When you import 80-85% of your oil, it’s hard not to discount crude by 20%, especially amid the pandemic and slowing global growth.Samir N. Kapadia, head of trading at government relations consulting firm Vogel Group, told CNBC via email.

However, many readers will not have lost sight of the fact that India has maintained a cozy relationship with Russia over the years, with Russia supplying the Asian country with up to 60% of its military and defense-related equipment. Russia has also been India’s main ally on important issues such as its dispute with China and Pakistan over Kashmir.

But hey, India and China aren’t the only ones to blame here. Reports have emerged that while supplies of Russian pipeline gas – the main part of Europe’s gas imports before the Ukraine war – are now at a trickle, Europe is voraciously hoarding Russian LNG.

Europe has been working hard since the invasion of Ukraine to deny Russia energy commodities. The European Union has banned Russian coal and plans to block most Russian oil imports until the end of 2022 in a bid to deprive Moscow of a vital source of revenue for its war in Ukraine.

But the rejection of Russian gas is more severe than Europe expected. As supplies of Russian pipeline gas, which made up the bulk of Europe’s gas imports before the Ukraine war, dwindle, Europe is voraciously hoarding Russian LNG. The Wall Street Journal reported The bloc’s imports of Russian liquefied natural gas rose 41% in the year to August.

Russian LNG has been the dark horse of the sanctions regime.Maria Shagina, a researcher at the London-based International Institute for Strategic Studies, told the WSJ. Importers of Russian LNG to Europe have argued that shipments are not covered by current EU sanctions and that buying LNG from Russia and other suppliers helps keep European energy prices in check.

By Alex Kimani for

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