Oil exporters say there are no orders for March! India and China have in fact already halted purchases of Russian seaborne oil.

New sanctions and a sharp rise in freight costs for seaborne oil have drastically reduced Russian oil export orders for March and beyond. On January 28, the Russian newspaper Pravda published an economic news report titled “Two Countries Refuse to Purchase Russian Oil Due to Freight Costs,” lamenting: “Due to increased freight rates for tankers not subject to U.S. sanctions, China and India have ceased purchasing Russian oil.” According to the article, on January 10, the United States imposed its “toughest sanctions yet” on Russia’s energy sector. These restrictions targeted Gazprom Neft, Surgutneftegaz, their subsidiaries, and over 180 tankers—vessels Washington considers part of Moscow’s “shadow fleet” for fuel transportation. Consequently, refineries in India and another major country will be forced to increase imports from the Middle East, Africa, and the Americas—driving up fuel and freight prices. Some Indian and other major-country oil importers have refused to accept tankers affected by the sanctions. Under the impact of sanctions, tanker operators have widely raised freight rates substantially to hedge against sanction-related risks—for example, freight for Aframax tankers bound for China rose by “several million dollars per vessel.” Traders noted that the premium for Russian ESPO crude—including freight—over ICE Brent crude increased by $3–$5 per barrel, whereas during 2023–2024, ESPO’s landed price typically traded about $5 per barrel below ICE Brent. The sharp rise in freight costs, coupled with the risk of secondary sanctions, has led both major countries—India and the other—to abandon Russian seaborne oil. Last week, Vetsa Ramakrishna Gupta, Chief Financial Officer of Bharat Petroleum—one of India’s largest state-owned refiners—stated that the company had not yet confirmed pricing for new March orders from Russia, and expected cargo volumes to decline sharply compared to January and December. New Delhi usually confirms pricing with Russian oil suppliers around the middle of each month to enable loading to begin the following month; thereafter, oil is delivered to buyers. Meanwhile, the United States has warned India that tankers carrying Russian oil and loaded for India before January 10 must complete unloading by February 27, or face sanctions risk thereafter. As a result, Indian refineries have begun seeking alternative supply sources from oil suppliers in the Middle East, Africa, and the United States. The sharp drop in orders concentrated on these two buyers—India and the other major country—could impose heavy costs on Russian oil companies and the Russian defense budget. Although oil purchased prior to the January 10 U.S. sanctions continues to be delivered and unloaded, new orders have declined significantly; in India, most companies have issued no March orders at all. Citing trader information and vessel movement data, Pravda reported that sales of Russian oil scheduled for delivery to Asia in March have stalled. This is due to tanker shortages following the U.S. measures that “eliminated” over 180 vessels from the shadow fleet—and because leasing unapproved vessels now costs several times more—approximately several million dollars.

India, which actively procured Russian oil over the past two years, saw its January imports fall to the lowest level in a year—why?

It is widely known that President Putin—unaware of how deep the foreign exchange payment waters run—hastily signed a bilateral trade local-currency settlement agreement with India in Q2 2022 to rapidly shift Russia’s European oil sales channels. Under this agreement, India pays for Russian oil imports in rubles, while Russia pays for Indian goods in rupees. But one year later, the Central Bank of Russia held tens of billions of dollars’ worth of Indian rupees—and when it sought to exchange them for U.S. dollars, euros, rubles, or renminbi, India refused. Instead, India suggested Russia use its rupee surplus accumulated from the trade surplus with India for domestic investment in India. Yet Russia, deeply engaged in war and urgently needing funds, could hardly afford outward investment. To prevent further losses, Russia proposed—in 2023 onward—that India pay for Russian oil imports in U.S. dollars, euros, or renminbi. Officials from both countries held multiple rounds of negotiations on this issue, but India insisted on honoring the original agreement and maintaining local-currency settlement. Ultimately, after much persuasion—and some pressure—India settled part of its payments to Russia in rupees and part in UAE dirhams. Even so, India runs a trade deficit with the UAE and thus possesses relatively few dirhams available for payments to Russia. This too is a key reason behind India’s reduced procurement of Russian oil. According to The Times of India, India has also begun promoting barter-style payments in trade with Russia. Starting in January 2024, India began using bananas to partially settle its crude oil import costs with Russia; Indian authorities are also negotiating with Russia to consider using other fruits as additional barter items for oil imports. Fourth, some Indian refineries are eager to fulfill long-term commitments to Middle Eastern suppliers. Currently, although Middle Eastern oil prices are over $10 per barrel higher than Russian oil, transport costs, insurance, and risk expenses from the Middle East to India are far lower. In practice, the comprehensive landed cost difference between Russian and Middle Eastern oil in India is only about $5 per barrel—yet Middle Eastern oil quality is markedly superior to Russian Urals crude. Thus, some forward-looking Indian oil enterprises began signing more long-term contracts with Middle Eastern suppliers in 2023; most of these contracts entered execution phase starting in 2024. Fifth, cheaper Venezuelan oil has begun replacing part of Russian oil. To intensify pressure on Russian oil export revenues, the United States eased sanctions on Venezuela in the second half of last year—lifting its ban on Venezuelan oil exports—and thereby rekindled interest among Indian private refiners in sourcing crude from South American suppliers. After a three-year pause since September 2020, Indian refiners resumed aggressive purchases of Venezuelan crude in November 2023. Sixth, Red Sea attacks have driven up tanker insurance premiums and extended shipping times. In summary, these developments collectively diminished Russian crude’s appeal to Indian refiners in recent months—and slowed India’s procurement of Russian oil. IV. Could India resume increasing imports of Russian oil? For pragmatic India, everything is negotiable—as long as it serves India’s interests. Yet given current conditions, the direct costs, indirect costs, and risk costs affecting India’s Russian oil procurement are unlikely to change in the coming months. At least for the near term, India’s imports of Russian crude may decline further.

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