In the past few years, India has become one of the biggest buyers of Russian oil. This started when the West imposed sanctions on Russia after the invasion of Ukraine in 2022. With Western companies pulling out, Russia needed a new market for its oil, and India stepped in. But now, things are changing, and many traders are backing out of these oil deals. Why? The reason lies in Russia’s soaring interest rates and the rising costs to fund these trades.
How India Became a Key Buyer of Russian Oil
After the sanctions, Russia couldn’t sell its oil to Western countries, and India became one of the top buyers. Russian oil is cheaper than oil from other countries, which makes it attractive for Indian refineries. Since 2022, Indian companies have been importing more and more crude oil from Russia, making it a significant part of their oil supply. This deal became highly profitable for traders, as they could make big money moving Russian oil to India.
The Rise of New Oil Traders
With Western companies exiting the Russian oil market, new trading companies emerged. Many of these traders were small, little-known businesses registered in places outside Europe. They took advantage of the situation and handled large amounts of Russian oil, bringing in profits even though the risks were high. These companies weren’t always transparent in their operations, which made it hard to track what was really going on in the market.
Russia’s Interest Rate Hike Changes Everything
Everything started to shift when Russia raised its interest rates to a shocking 21%. This is the highest rate in two decades, and it had a big impact. Traders who depended on Russian banks to finance their oil deals suddenly found it more expensive to fund their trades. Western banks aren’t willing to get involved because of the sanctions, so Russian banks have been the only option for financing. With these higher costs, many traders started pulling out of the oil business with India.
The Fall of Middlemen in Russian Oil Trade
As a result, a lot of the middlemen – the small traders who were handling Russian oil – have disappeared. These traders were once responsible for moving large amounts of crude oil to India, but now the market is being controlled by just a few big players. Companies like Litasco Middle East, which is owned by Russia’s Lukoil, and Dubai-based firms like Hinera Trading and Black Pearl Energy are now handling most of the Russian oil exports to India. The volume of crude going to India hasn’t decreased, but fewer traders are involved in the process.
The Rising Costs and Smaller Discounts
Another key change is the narrowing of the discounts on Russian oil. Before, Russian oil was sold at a big discount because of the sanctions. But as demand from India grew and the number of traders dropped, these discounts started shrinking. In fact, private Indian refineries like Reliance Industries and Nayara Energy (which is controlled by Russia’s Rosneft) have already reduced their Russian oil imports by 18% in November compared to the previous month. This reduction shows how the rising costs of Russian oil are starting to bite.
What’s Next for the Russian-Indian Oil Deal?
The future of Russian oil in India is uncertain. The costs are rising, and many traders are pulling out. With fewer middlemen involved, the market is becoming more controlled by large trading houses. However, India’s need for cheap Russian oil is still strong, and it’s likely that Russian crude will continue to be a major part of India’s energy supply. But how long will these high costs and fewer trading options last? Only time will tell.
In short, what seemed like a profitable and stable oil trade between Russia and India is facing big changes, and it’s becoming more complicated for the small players involved.
2 Responses
With Syria falling, Iran on the Brink, Lebanons isolation and now high interest rates, Russia seems to have not friends. However, it is the last true christian church, it will survive.
With Syria gone, how do you see the future of Russia in the middle east?