China And India Are Buying Russian Crude At A 40% Discount

According to Bloomberg, China and India are buying Russian crude at a 40% discount, and Moscow may be losing $4 billion in energy earnings every month as a result of its war in Ukraine.

China And India Are Buying Russian Crude At A 40% Discount 1

The Easternmost members of the European Union, including Poland, Estonia, Latvia, and Lithuania, argued that the proposed $60-$70 per barrel for Russian crude is too generous and significantly higher than the prices Russia currently sells crude, which prevented the EU on Friday from reaching an agreement on a price cap for Russian oil.

Vice-President of the European Commission Valdis Dombrovskis confirmed as much, saying, “If you put the price cap too high, it doesn’t really bite. Oil is the biggest source of revenue for the Russian budget, so it’s very important to get this right so it really has an impact on Russia’s ability to finance this war,” he told Bloomberg TV.

They are right, in that providing $70 per barrel for Russian Urals is very generous given that China and India now purchase them for less than half that price, according to a recent Bloomberg report.

Julian Lee, an oil strategist for Bloomberg, claims that at the end of the previous week, the world’s most popular crude oil, Brent, was trading at a steep discount of $33.28, or approximately 40%, to Russia’s flagship Urals crude oil. Compared to Brent, Urals were trading at a far smaller discount of $2.85 a year ago. Russia’s primary blend exported is Urals. The end effect: According to Bloomberg’s calculations, Moscow may be losing $4 billion in energy earnings every month as a result of its war in Ukraine.

Washington is not losing sleep over it. “If Russian oil is going to be selling at bargain prices and we’re happy to have India get that bargain or Africa or China. It’s fine,” US Treasury Secretary Janet Yellen previously told Reuters.

Greece and other shipping nations support a higher price cap because it will keep trade open. However, with EU sanctions on Russian oil slated to take effect on December 5 and market disruptions anticipated if a price ceiling is not in place, the position for Russia could get even murkier. According to reports, Russia is currently developing a presidential order that would prohibit its companies from selling their products to anyone who takes part in a price cap.

Surging Imports From Russia

Even though it had to import crude oil to meet 80% of its needs, India had never been a major client of Russian crude. India typically imports just 2 to 5 percent of its oil from Russia, which is about the same amount that the United States did before to its announcement of a complete ban on Russian energy products. In fact, India bought only 12 million barrels of Russian crude in 2021; instead, it obtained the vast majority of its oil from Nigeria, Iraq, Saudi Arabia, and the United Arab Emirates.

However, news of a “significant uptick” in Russian oil shipments to India first surfaced in May.

In the first three months following the invasion, India spent almost $5.1 billion on Russian oil, gas, and coal, which is more than five times the amount it did a year earlier, according to a Bloomberg article. The largest consumer of Russian energy products, China spent $18.9 billion in the three months ending in May, nearly twice as much as it did a year earlier.

And, it’s all about the money.

The International Energy Agency (IEA) reports that since the war started, Urals crude has been provided at record discounts. Ellen Wald, head of Transversal Consulting, reported to CNBC that a few commodity trading companies, including Glencore and Vitol, were providing discounts of $30 and $25 per contract in the early months of the battle.

“Today, the Government of India’s motivations are economic, not political. India will always look for a deal in their oil import strategy. It’s hard not to take a 20% discount on crude when you import 80-85% of your oil, particularly on the heels of the pandemic and global growth slowdown,” Samir N. Kapadia, head of trade at government relations consulting firm Vogel Group, told CNBC via email.

Nevertheless, it won’t come as a surprise to many readers that India and Russia have maintained a friendly relationship over the years, with Russia providing India with up to 60% of its military and defense-related equipment. Russia has also been a critical ally on crucial matters like Pakistan’s claim to Kashmir and India’s dispute with China.

But hey, this isn’t just the fault of China and India. According to reports, while supplies of Russian pipeline gas, which made up the majority of Europe’s gas imports prior to the Ukraine war, are currently at a trickle, the continent has been eagerly snatching up Russian LNG.

Since Russia invaded Ukraine, the European Union has made a concerted effort to wean itself off of Russian energy supplies. Russian oil and coal imports will both be banned by the European Union by the end of 2022 in an effort to deny Moscow a crucial source of funding for its war in Ukraine.

However, switching from Russian gas is proving to be more difficult than Europe had anticipated. While Russian pipeline gas supplies, which made up the majority of Europe’s gas imports before to the Ukraine War, are at a trickle, Russian LNG is being eagerly aquired by Europe. According to The Wall Street Journal, in the year leading up to August, the bloc’s imports of Russian liquefied natural gas increased by 41% year over year.

Russian LNG has been the dark horse of the sanctions regime,” Maria Shagina, a research fellow at the London-based International Institute for Strategic Studies, has told WSJ. Importers of Russian LNG to Europe have argued that the shipments are not covered by current EU sanctions and that buying LNG from Russia and other suppliers has helped keep European energy prices in check.

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