Moscow will have to lose profits and look for new ways to circumvent sanctions
Succumbing to the persuasion of the Western political elite, Delhi, during informal negotiations, nevertheless agreed to buy oil from Moscow no more than the price «ceiling» at $60 per barrel, set by Europe and the G7 countries at the end of last year, Bloomberg reported. If such a decision is confirmed at the official level, then Russia risks not only reducing the income from the export of «black gold» to India, which has recently grown by a dozen times, but also curtailing ties with one of its main economic allies.
India confirmed its tentative agreement to “follow a ceiling on Russian oil prices” in early March during talks with the United States and other Western countries on the sidelines of the recent G20 meeting, according to Bloomberg sources.
Moreover, the answer to the question why the Indians and their Western partners have not shared such important news with the media for almost two weeks is quite obvious. Delhi has not officially stated that it will support capping the price of Russian oil. Over the past few months, India has increased its imports of «black gold» from our country by 16 times, equaling China in this indicator. Domestic suppliers provide Indians with discounts of 10-25%, if only they continue to increase the volume of transactions.
Nevertheless, despite all the preferences provided, the Indian authorities, according to the Western agency, decided not to go against the collective West and join the «ceiling» of prices for Russian oil determined by Europe and the G7. The time lag taken by both sides was necessary for Delhi to convince national bankers and stock traders to adhere to the restrictions provided for by the sanctions.
It is worth noting that, although raw material flows from our country to Indian consumers are uninterrupted, certain problems are gradually beginning to appear in expanding cooperation with the South Asian power.
First of all, the transition of Moscow and Delhi to payment for energy resources in national currencies raises questions. India pays for the supplies without any complaints. However, Russian holdings that received proceeds in rupees cannot find a use for them: the list of Indian goods that are in demand on the domestic market is still very limited.
What could be fraught with Delhi's demarche for the Russian energy sector and our economy as a whole , «MK» experts told.
Artem Deev, Head of the Analytical Department at AMarkets: “There have been no official statements from the Government of India yet, so it is difficult to say how Delhi will comply with the imposed sanctions against the Russian Federation. In any case, this is more of a political statement than an economic decision.
No one knows for sure at what price India buys oil from Russia now — most transactions are made according to «gray» schemes, so track their compliance with the «ceiling» difficult. India, of course, is interested in buying raw materials from our country at a discount.
Theoretically, Delhi's intentions to join the sanctions could lead to Russia's ban on the export of raw materials, and losing such a profitable supplier to India is unprofitable. Therefore, it is possible that the negotiating maneuvers with the West can be seen as a kind of bargaining: India wants to assure Washington of its commitment to the price ceiling, while continuing to buy energy resources from Russia in the «shadow».
Natalia Milchakova, Leading Analyst at Freedom Finance Global: “This year India has become one of the largest importers of Russian oil, the volume of which has reached 1.2 million barrels per day. This is more than half of the exports of «black gold», previously sent by sea from Russia to Europe. On the one hand, with the increase in our oil deliveries to India, our country's dependence on a new major energy importer is growing; on the other hand, Delhi, with its rapidly growing economy, is also interested in and, one might even say, dependent on contracts with our country. Perhaps now Russia supplies oil to India at a discount to the market, but not at the price of the «ceiling». In the future, it may turn out that Delhi promised Washington compliance with the restriction, while the Indians will not refuse to use all the possibilities of delivering Russian imports, bypassing European and American traders. Such raids can be carried out both through the «shadow fleet», formed by domestic manufacturers, and through carriers from third countries.
Dmitry Alexandrov, Head of Analytical Research at IVA Partners Investment Company: “India will primarily focus on its own interests in the energy sector, so it can decide not to purchase Russian oil only in the event of very strong direct pressure. So far, there is no such pressure, and additional trading mechanisms and solutions (including lengthening the supply chain, changing the conditions of the initial delivery, etc.) that Indian companies can apply to reduce risks seem more likely.
How expensive such solutions will turn out to be, if they are applied at all — the question is, but it is unlikely that more than 1/10 of the cost of contracts, although this is a lot.
As pressure from the West tightens, all states interested in obtaining our energy resources will apply more sophisticated or longer supply chains, which will naturally affect time and cost. However, we do not know if this will not be the reason for the rise in oil prices themselves, especially given the growing complexity of relations between the United States and Saudi Arabia, which is normalizing interaction with Iran. The development of this story may give an unexpected impetus to the oil trade, and not necessarily in an uptrend.”