Asian refiners widely believe that tighter sanctions on Russian oil trades for India adversely affect the Middle Eastern sour crude procurement economics across the region, as the Dubai price structure’s backwardation averages nearly $3/b in the third quarter.
In recent years, India has played a crucial role in the Asian refining landscape by actively procuring sensitive Russian crude. This strategy has inadvertently benefited other Asian refiners by reducing competition for their staple Middle Eastern sour crude, according to feedstock managers and linear programming model strategists from Thai, South Korean, Japanese, and Taiwanese refiners said over Aug. 10-13.
Refiners in Asia’s third and fourth largest crude buyers, South Korea and Japan, have expressed appreciation for India’s willingness to engage with sensitive Russian crude. This engagement has allowed them to secure stable supplies from Persian Gulf suppliers without facing intense bidding wars.
This collaborative approach has ensured that the Asian refining industry maintains a steady flow of Persian Gulf sour crude oil at reasonable prices amid geopolitical tensions, according to feedstock management sources at Japan’s ENEOS, a state-run Thai refiner, and a major South Korean refiner based in Ulsan.
Indian refiners have been actively purchasing Russian crude, while lowering Persian Gulf sour crude intake, a “win-win” move for the entire Asian refining industry, according to refinery feedstock managers and LP model strategists across East Asia.
According to S&P Global Commodities at Sea data, India is the largest importer of Russian crude, with inflows reaching 1.80 million b/d in 2024.
However, India is under increasing pressure to reduce its Russian oil imports and shift back towards Middle Eastern crude sources. Washington has threatened secondary sanctions on countries trading with Russia, specifically targeting India.
Additionally, upcoming EU sanctions effective January 2026, aimed at petroleum products from Russian crude, will further complicate the landscape, impacting India’s refining sector.
If India significantly increases its demand for Middle Eastern sour crude cargoes, it could raise the benchmark Platts Dubai crude market structure due to heightened competition among Asian buyers, according to traders based in Singapore and refinery feedstock managers across East Asia.
The current market dynamics favor the continuation of Indian imports of Russian crude, as it provides a buffer against inflated price structure for Middle Eastern sour crude, according to a feedstock procurement strategist at Thailand’s PTT.
Dubai price structure
While East Asian refiners are not concerned about fully securing their contractual Middle Eastern sour crude supplies, rising logistical and maritime insurance costs for Persian Gulf-Asia deliveries, along with increasing official selling prices for Persian Gulf sour crude, negatively impact overall refining margins.
“OPEC+ production hikes are beneficial for Asia’s overall energy security and keep paper (oil futures) prices under pressure… but the actual physical market fundamentals for Persian Gulf sour crude would strengthen as India shifts its focus from Russian Urals to Middle Eastern barrels,” said a trade flow analyst at a Japanese integrated trading company.
Platts, part of S&P Global Commodity Insights, assessed the spread between cash Dubai and same-month Dubai swap at an average of $2.9/b to date in the third quarter, compared to the Q2 average of $1.61/b.
The spread — widely known as the Dubai market structure — is considered a key component in the monthly official selling price calculations of major Middle Eastern producers.
Reflecting the steep backwardation structure, Saudi Aramco raised its September crude OSP differential for its flagship Arab Light crude cargoes destined for Asia by $1/b to a premium of $3.20/b to the average of Platts Dubai and GME Oman on Aug. 6.
Still, the Dubai market structure may have limited upside and is likely to ease in the near-term trading cycles as various Asian refiners find light sweet US WTI Midland crude very attractive.
Thai, Japanese, South Korean, and Taiwanese refiners are eager to increase the proportion of US crude in their feedstock mix to diversify supply sources and reduce exposure to Middle Eastern geopolitical risks, according to refinery sources and trade participants.
India strategy
Indian refiners are adopting a cautious approach, balancing their Russian imports with efforts to diversify their crude sourcing in anticipation of clearer signals regarding US sanctions.
The ongoing uncertainty surrounding these sanctions has led refiners to slow down new import deals with Russia while exploring options from non-OPEC suppliers, such as the US and other regions.
“India could look strategically at limiting Russian crude import volumes economically, and only importing in case of a large arbitrage, or alternatively ensuring it’s use purely for domestic demand by processing it in inland refineries and segregating the financial system that underpins this trade,” said Tushar Bansal, senior director at consulting agency Alvarez and Marsal.
“However, at this moment, it’s difficult to see an elimination of Russian crude completely from India’s refinery diet even in the case of secondary sanctions,” he added.
Source: Platts