India’s Growing Demand for Russian Crude Oil Faces Higher Shipping Costs

New Delhi: India’s rising demand for Russian crude oil, driven by reduced purchases from European buyers and limited Chinese imports, has come with a downside. While the discounts on Russian oil prices have shrunk, the shipping rates charged by Russia-arranged entities remain opaque and higher than normal. This has led to concerns about inflated shipping costs for Indian refiners, who are now the largest buyers of Russian oil.

Sources reveal that Russia bills Indian refiners slightly below the imposed USD 60 per barrel price cap set by the West. However, the shipping costs from Russian ports to India range between USD 11 and USD 19 per barrel. These rates are twice as high as normal and exceed the costs for comparable distances, such as voyages from the Persian Gulf to Rotterdam.

The lack of transparency in shipping rates is a major concern. Russian entities charge Indian refiners significantly higher shipping fees, which are often based on quotes from three undisclosed agencies. These agencies lack independent evaluation, making it difficult to assess the validity of the rates. As a result, a large portion of Russian oil revenues is channelled to these opaque entities.

Indian refiners, including government-controlled entities and private companies, negotiate separate deals with Russia. If they were to negotiate collectively, there could be potential for higher discounts. However, state-controlled units, accounting for 60 percent of Russian oil imports into India, have not pursued joint negotiations. This lack of coordination has limited the discounts obtained by Indian refiners.

Russia’s invasion of Ukraine in February last year led to European buyers and some Asian countries, such as Japan, shunning Russian oil. Consequently, Indian refiners seized the opportunity and increased their purchases of discounted Russian oil. However, these discounts have been diminishing as individual refiners continue to negotiate separate deals with Russia.