Countries in Asia are turning to Russia for discounted oil as global energy prices remain high, and Western nations seek to scale down their reliance on Russian energy.

India has been increasingly buying up Russian crude, and the latest shipping data shows that China has also been buying more.

Where’s the oil going?
Although exports to the European Union (EU) have fallen since Russia’s invasion of Ukraine, the bloc is still buying a significant amount – over a million barrels of oil per day.

However, EU members states have said they’ll ban all sea-borne imports from December (most Russian oil comes by sea rather than by pipeline).

But India and China have recently become big buyers and now account for over half of all Russia’s seaborne oil exports.

In March this year, combined oil imports by China and India from Russia overtook those from the 27 EU member states by volume.

India’s purchases of Russian oil known as Urals (a crude blend typically exported to Europe) increased sharply earlier this year.

India’s imports of another Russian crude blend called East Siberia Pacific Ocean (ESPO) have also seen a rise, shipping information shows.

China has been buying larger quantities of both Urals and ESPO since March. In early July, it was reported to have bought record amounts for the second month in a row.

In contrast, Japan has made clear it will phase out Russian oil imports, and South Korean imports of Russian crude have fallen.

Sri Lanka, grappling with a severe economic crisis, is taking advantage of these discounts, with three shipments of Russian oil delivered.

Myanmar’s military regime recently said that they would also start importing from Russia.

Cheaper oil driving the flow to Asia
Following its invasion of Ukraine in February, Russia had fewer buyers for its Ural crude oil, with some foreign governments and companies deciding to shun Russian energy exports, and its price started to fall.

At one point earlier in the year, Russian crude was more than $30 a barrel cheaper than Brent crude [the global benchmark].

Can the world manage without Russian oil and gas?
While the exact price of the sales to India is unknown, the discount for Russian crude has narrowed to around $20 per barrel.

In July, India’s imports of Russian oil fell slightly as the price was less attractive compared with crude from Saudi Arabia.

Recently, Ukrainian Foreign Minister Dmytro Kuleba said “every barrel of Russian crude oil delivered to India has a good portion of Ukrainian blood in it”.

The Indian government has defended its purchases from Russia, saying it has to source oil from where it is cheapest.

The US government has acknowledged that it can’t stop these purchases because there are no secondary sanctions on countries doing business with Russia.

It’s also not clear if India or China will follow a plan by the G7 countries (UK, US, Canada, France, Germany, Italy and Japan) to cap the price of Russian oil in a bid to limit Moscow’s earnings from energy exports.

The impact of sanctions
Although the price is attractive, India’s big refining companies are facing a challenge trying to finance these purchases, because of sanctions on Russian banks.

It’s a problem facing trade in both directions.

One of the options India is looking at is a transaction system based on local currencies, where Indian exporters to Russia get paid in roubles instead of dollars or euros and imports are paid for in rupees.

The US has made clear its reservations with this, saying it could “prop up the rouble or undermine the dollar-based financial system”.

Russia was also reported to be asking for payments from India in the currency of the UAE, although the trading firms involved did not confirm the report.

And China’s state-owned oil enterprises are increasingly using the Chinese renminbi rather than the US dollar to finance oil purchases from abroad.

Where else are Indian and China getting oil?
India’s imports of crude oil from the US went up sharply at the end of 2021 and earlier this year year, but then fell before picking up slightly.

Although India’s imports from Russia have grown, it also buys a large amount of oil from Middle Eastern countries, noticeably Iraq and Saudi Arabia.

China also continues to buy oil from the Middle East as well Angola and Brazil, although in July, Russia remained its top supplier for the third month in a row.
Source: BBC