Russian oil which remained the mainstay of India’s crude procurement strategy since the US-Iran conflict began has swung from being available at high premiums to discounts and back at premiums again as the Middle East conflict situation has evolved.The conflict in Iran turned the pricing of Russian crude for Indian refiners into a key indicator of market sentiment, with discounts swinging dramatically as the crisis unfolded. The effective closure of the Strait of Hormuz in early March left tankers carrying crude from Gulf producers stranded in the Persian Gulf, forcing refiners to urgently secure alternative supplies.Also Read | Hormuz oil shock sends India back to Russia: Is this a peak or the new normal?The conflict has also recently shown signs of expanding, as Iran-backed Houthi rebels in Yemen have intensified attacks on commercial vessels in the Red Sea, disrupting exports from Saudi Arabia, India’s second-largest crude supplier. Fresh worries over global supply have pushed Brent crude prices back to nearly $100 per barrel.
Russian crude oil price swings
Before the war, Russian oil was available at discounts of around $2 per barrel. At the peak of supply concerns, however, it traded at premiums of up to $20 per barrel over Brent crude. During the brief ceasefire, pricing reversed to discounts of about $10 per barrel before moving back to near parity with Brent as hostilities resumed, according to an ET report.“Russia became the saviour,” an industry executive said, explaining that large volumes of Russian crude were already at sea, including cargoes in the Indian Ocean, enabling relatively quick deliveries to Indian refiners. With buyers competing aggressively for available supplies, sellers of Russian crude were able to demand substantial premiums. “Indian refiners paid premiums of $12-20 a barrel for Russian oil,” the executive told the financial daily. Refiners, which had gradually reduced purchases from Russia over the previous three months because of US sanctions, doubled their imports in March.Since then, Russian crude has consistently accounted for about 40% or more of India’s total crude imports, although procurement costs have continued to fluctuate in line with changing perceptions of supply risk. A marked slowdown in China’s crude purchases also released additional Russian cargoes into the market, making more barrels available to India and other importers.Indian refiners broadened their sourcing strategy by purchasing crude from Angola, Gabon and Congo, while Saudi Arabia increased exports through its Red Sea terminals to mitigate disruptions to Gulf shipments. As concerns over supply eased, the premium on Russian crude narrowed to around $10 per barrel by April.By May, the premium had almost vanished as higher supplies from Brazil, Venezuela, Saudi Arabia and the UAE improved market availability. At the same time, the Iran-US ceasefire, which was extended several times, strengthened confidence that the conflict was unlikely to trigger a broader disruption to global oil supplies.The interim agreement between Iran and the US in June restored discounts on Russian crude. As geopolitical tensions eased, Brent crude fell sharply from more than $120 per barrel in April to about $71 per barrel, prompting Russian oil discounts to widen to roughly $10 per barrel.Those discounts have since disappeared following the resumption of hostilities between Iran and the US, with traders becoming increasingly reluctant to offer price concessions amid renewed supply concerns.