Indian State Refineries Turn Their Gaze Towards the Middle East

India's leading state refineries are facing a challenge: after their largest oil supplier Russia reduced spot deliveries, they are now increasingly seeking crude oil from the Middle East. This could support the price of sour crude oil, according to insiders. The refineries Indian Oil, Bharat Petroleum, and Hindustan Petroleum report a supply gap of 8 to 10 million barrels of Russian oil for January. The refineries face the problem of finding it difficult to source Russian oil on the spot market in the coming months as well—a result of Moscow's increasing domestic demand and obligations within the OPEC alliance. Nonetheless, the situation is not hopeless: the companies can draw from existing inventories to meet their processing requirements through March. Additionally, some are considering sourcing crude oil from the Middle East through optional volumes in existing contracts or issuing spot tenders for sour crude oil. As early as March 2022, the leading refinery Indian Oil initiated such spot tenders for sour crude grades. A statement from the affected companies is still pending. It is interesting that after the EU sanctions against Russia in 2022, India became the largest importer of Russian crude oil. More than a third of Indian energy imports now come from Russia, despite its exports in the spot market declining. Russia has to meet its own needs and fulfill OPEC mandates. Moreover, a significant portion of the seaborne exports of Russia's state oil company Rosneft is already tied up through a partnership with the Indian private company Reliance Industries. This agreement further reduces the spot supply. In a remarkable move, Indian refineries, unaffected by sanctions against Russia, have purchased Russian oil at a discount of at least 3 to 4 dollars per barrel. Although there were traders willing to accept payments in yuan, the state refineries have ceased these payments following a government directive.