Indian Refiners Restructure Supply Chains To Keep Russian Oil Flowing

Indian refiners are restructuring their supply chains to keep importing discounted Russian crude despite the latest U.S. sanctions.

The new restrictions, imposed in January, have targeted shipping companies, trading firms, and other entities involved in transporting Russian oil, making it difficult for Indian companies to secure shipments.

Since the start of the Russia-Ukraine conflict, India has increased its Russian oil imports, with major buyers like Indian Oil Corporation, Bharat Petroleum, Mangalore Refinery & Petrochemicals, and Reliance Industries relying on discounted crude.

Russian oil went from being a negligible part of India’s total imports to making up around a third of its supply. However, the latest U.S. Sanctions have affected nearly 160 oil tankers and several key trading entities, forcing Indian refiners and Chinese buyers to find alternative suppliers.

The impact has been severe, with Indian refiners expected to miss out on 18 to 20 cargoes of Russian crude scheduled for March. This amounts to about 20 million barrels- roughly 14% of India’s monthly oil imports.

Executives from Indian oil companies, speaking anonymously, revealed that they are working with non-sanctioned traders, shopping firms, and insurers to bypass restrictions.

Some of these are existing companies that have not been affected, while others are newly established to replace those blacklisted by the U.S.

Among the new players offering Russian crude in the market are Dubai-based firms like L-Oil and Sccton.

Industry insiders suggest that while these entities are new in name, they are operated by the same traders who were previously running firms like Black Pearl, Guron Trading, and Demex Trading-companies sanctioned in January.

Dubai and Hong Kong have become hubs for setting up new trading and shipping firms dealing in Russian and Iranian oil.

The ease of opening and shutting down companies has created a situation where new entities emerge faster than U.S. authorities can impose sanctions, making enforcement a constant challenge.

Apart from finding new suppliers, Indian refiners are also dealing with issues related to shipping, payments and insurance. Oil Secretary Pankaj Jain, speaking at an energy conference in Delhi, acknowledged the difficulties in securing Russian crude under the new conditions.

“Imports need ships that are not sanctioned, insurance which takes time to reconfigure, and imports will need payments to go through. So each one of these has problems that need to be solved,” Jain said.

There is also interest in alternative methods to mask the origin of Russian crude. One approach involves transferring Russian oil into onshore storage tanks in locations like Fujairah.

Once stored, the oil can be reloaded onto another vessel and labelled as UAE-origin crude, making it easier to trade without attracting scrutiny.

This method is already commonly used by Chinese buyers to disguise Iranian oil shipments. However, the higher costs of onshore storage have made it a less popular option so far.

Despite these hurdles, India remains committed to purchasing Russian crude if it is sold below the $ 60-per-barrel price cap and transported via non-sanctioned tankers and traders.

Indian Oil Minister Hardeep Singh Puri reiterated that India has multiple crude sources and will continue to seek cost-effective options.

Russia, too, is determined to keep its exports flowing. Speaking at the Delhi conference, Russian First Deputy Energy Minister Pavel Sorokin stated that the global market cannot afford to lose Russian oil without causing major economic losses.

“There is no other oil or energy that can replace it without having the world incur a huge cost,” he said.

References: Bloomberg, Oil Price

Source: Maritime Shipping News