Russia offers discounts on oil to India, one of Putin\'s few fuel buyers

Russia is offering India steep discounts on the direct sale of oil as mounting international pressure lowers the appetite for its barrels elsewhere following the invasion of Ukraine, according to sources with knowledge of the matter.

The sanctions-hit nation is offering its flagship Urals grade to India at discounts of as much as $35 a barrel on prices before the war to lure India to lift more shipments, the sources said, asking not to be identified discussing confidential deliberations. Headline Brent prices have risen about $10 since then, implying an even larger reduction from current prices.

Russia wants India to take 15 million barrels contracted for this year just to begin with, they said, adding the talks are taking place at government level.

Asia’s No. 2 oil importer is among a handful of nations that have been doubling down on Russian crude, defying international pressure and sanctions. Russian barrels have been flowing to Asia in greater volumes as buyers across Europe and the U.S. shun the supply following the invasion of Ukraine. India and China have been the key buyers.

Russia has also offered rupee-ruble-denominated payments using Russia’s messaging system SPFS, that could make trading more attractive for India, they said. No final decision has been taken and the matter will probably be discussed when Russian Foreign Minister Sergei Lavrov arrives in India for a two-day visit Thursday.

The direct purchase is expected to involve Russia’s Rosneft PJSC and the Asian nation’s biggest processor Indian Oil Corp., which have an optional term contract -- that’s rarely used -- for close to 15 million barrels a year. It’s not clear what the upper end of the buying might be, but India is thought to have limited appetite for the grades being offered.

That contract has a built-in clause that Indian Oil will buy only when it’s economical, the sources said, adding a discount offered by Russia could make the oil trade viable even at a higher freight.

“India’s intake of Russian oil has been very small for many, many years,” said Vandana Hari, founder of oil market analysis provider Vanda Insights in Singapore. “So the refineries are not configured to buy a lot of Russian oil.”

Representatives for Indian Oil didn’t immediately reply to calls seeking comment and India’s Oil Ministry declined to comment.

Shares of Indian state-run refiners rose in Mumbai. Indian Oil climbed 2.3% as of 10:53 a.m., while Hindustan Petroleum rose 2.4%, beating the 0.1% gain in the benchmark index.

The two sides are exploring routing the oil through Russia’s Vladivostok Port in the far east to avoid shipping hurdles from the Baltic Sea in the west of the country. From there, oil shipments could reach India’s east coast refineries in fewer than 20 days, they said.

India is also seeking to push for greater exports of medicines, engineering goods and chemicals to Russia to narrow its trade gap created by oil and arms purchases.

Urals crude has been trading at discounts since the war began. Litasco, the trading arm of Russia Lukoil PJSC, offered a cargo of Urals at a discount of $31.35 to the Dated Brent benchmark in a pricing window organized by S&P Global Platts last week. There were no bids, and it was a deeper discount than a record-low offer by Glencore Plc a little over a week before. China buys a different grade of oil from Russia.

India has maintained a softer stance against Russia’s actions, while the U.S. and its allies have tried to isolate and punish Moscow over the invasion of its neighbor. India has not condemned Moscow’s attack in outright terms, even under international pressure.

New Delhi’s attempts to bypass the SWIFT system and lap up cheap Russian oil have also come under criticism from its allies in the Quad grouping, which includes the U.S. Australia and Japan. Other countries, like the U.K., have also put pressure on India.

On Thursday, visiting U.K. Foreign Secretary Elizabeth Truss called Russia the “number one” threat to world order. Speaking at an event with her Indian counterpart Subrahmanyam Jaishankar, she also called for more sanctions on Russian banks.

Jaishankar bristled at what he called a “concerted campaign against India’s oil purchase from Russia.”

“India is not among the top 10 buyers of Russian oil,” he said.