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The oil refinery Reliance Industries Ltd. in Jamnagar, Gujarat, India on Saturday 31 July 2021.
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India’s largest private oil refinery Reliance Industries is it is reported suspension of purchases of Russian crude oil after The US decision to sanction The two largest oil companies in Russia – Rosneft and Lukoil.
Reliance has become a major buyer of Russian crude oil. In September, it bought about 629,590 bpd of Russian crude from the two firms, out of India’s total imports of 1.6 million bpd, according to data from commodities data analytics firm Kpler.
In the same month last year, Reliance bought about 428,000 barrels per day of oil from the Russian companies.
In fact, Russian crude oil imports to India used to account for less than 3% of the total crude oil import basket, but today it accounts for a third of India’s crude oil imports, experts say.
Reliance did not respond to CNBC’s requests for comment on reports that it is halting purchases of Russian crude oil. In a statement late on Friday, Reliance Industries said it would comply with “EU guidelines for imports of refined products into Europe” but pointed out that there was still no guidance from the Indian government to limit crude oil imports from Russia.
The company added that its diversified crude oil supply strategy will help its refinery operations meet domestic and export demands.
The US Treasury Department imposed on Wednesday sanctions for Rosneft and Lukoil, citing Moscow’s “lack of serious commitment” to ending the war in Ukraine. The sanctions are aimed at “reducing” the Kremlin’s ability to finance its war, the US department said, signaling that more measures could follow.
If Reliance halts Russian purchases, it would have a “negative impact on (Reliance’s) margin and profitability as Russian crude accounts for more than 50% of (its) crude diet,” Pankaj Srivastava, senior vice president of commodity oil markets at market research firm Rystad Energy, said in emailed comments.
He added that the availability of “similar crude is not a problem” and could be sourced from West Asia, Brazil or Guyana, but Reliance is unlikely to get the same price as Russian crude because it has long-term deals with suppliers such as Rosneft.
Last December, Reliance Industries signed a deal to import crude oil worth $12-13 billion a year from Russia’s Rosneft for 10 years, which would mean roughly 500,000 barrels per day, according to a report by Reuters.
“Opportunistic Buying”
Indian refiners’ purchase of Russian oil is an “opportunistic purchase” driven by discounts to comparable levels, Vanda Insights’ Vandana Hari said.
India bought 38 percent of Russian crude exports in September, second only to China with 47 percent, according to the Center for Energy and Clean Air, a Helsinki-based think tank.
Hari added that Indian refiners could easily shift to sourcing, with the trade-off being “pressure on refining margins”.
Muyu Xu, senior crude oil analyst at Kpler, said the Indian refining giant could face some near-term problems as it looks to replace Russian crude.
“Given the large volumes of the Reliance-Rosneft deal, we expect some short-term problems for Reliance in securing spare barrels,” said Muyu Xu, senior crude oil analyst at Kpler.
She added that “Russia’s Urals medium sour remains about $5-$6/barrel (barrel) cheaper than Middle Eastern crude of similar quality.
A Jefferies report last month said the impact of Reliance Industries’ exit from Russian oil was “manageable”.
The brokerage said in September that it had received inquiries from investors about the possible financial impact on Reliance if it stopped importing Russian oil due to sanctions.
The Russian crude benefit accounted for about 2.1 percent of the firm’s estimated consolidated EBITDA of 2.05 trillion rupees ($22.8 billion) for fiscal 2027, the brokerage said.
Reliance’s consolidated EBITDA for the six months of fiscal 2026 was 1.08 trillion Indian rupees ($12.3 billion), of which 295 billion rupees was from the oil-to-chemicals segment, while its telecom and trading businesses together contributed nearly 500 billion rupees.
Hopes for a trade deal with the US
Other Indian refiners are also looking to reduce imports of Russian oil. Quitting Russian oil may raise India’s import bills, but it won’t be “as much of a shock as it might have been if crude had been in the $70 or $80 range,” Vanda Insights’ Hari said.
USA West Texas Intermediate Futures were trading around $61.83 a barrel on Friday.
Experts also say that the benefits of reducing Russian oil purchases from India outweigh the drawbacks.
According to Natixis Senior Economist Trinh Nguyen, the arbitrage offered by Russian oil during the energy crisis has diminished and now there is no need for India to have significant purchases of Russian oil.
India’s purchase of Russian crude oil has been a sore point in its trade relationship with the US, culminating in the US imposing a total of 50% tariffs on Indian goods exported to the US.
With both state-owned and private refiners expected to stop buying Russian crude – a long-standing demand of US President Donald Trump – the chances of India negotiating a mutually beneficial trade deal with the US have increased.
— CNBC’s Ying Shan Lee contributed to this report
