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Felicity Bradstock

Felicity Bradstock

Felicity Bradstock is a freelance writer specialising in Energy and Finance. She has a Master’s in International Development from the University of Birmingham, UK.

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Russian Oil Is Too Cheap To Resist For China And India

  • In response to Putin’s aggression in Ukraine, many countries have introduced total bans on Russian crude. 
  • As a result, Russia has been forced to sell its oil at a heavy discount.
  • The steep discount is making it impossible for India and China to resist.

Since Russia invaded Ukraine in late February, several countries have introduced sanctions on the country, restricting trade and stopping Russian energy imports. This has led to severe oil and gas shortages worldwide. But some governments are using this situation as an opportunity to establish a closer relationship with Russia while demand for its huge oil and gas supplies is low, providing countries with low-cost energy imports. 

While Australia, Canada, the U.K., and the U.S. have introduced total bans on Russian oil purchases, the EU and several other state governments around the world have refused to follow suit. It is thought that introducing sanctions and import bans on Russia will hit its economy hard, encouraging President Putin to pull out of the conflict in Ukraine. However, many governments recognize the importance of the Russian oil and gas supply, as one of the top three crude producers worldwide.

In 2021, Russian oil output totaled 10.5 million bpd, equating to 14 percent of the global supply. Russia exported approximately 4.7 million bpd of crude last year, with China as its main importer with around 1.6 million bpd, while it supplied 2.4 million bpd to European countries. 

In Europe, Germany, Hungary, and Bulgaria are some of the countries continuing to buy Russian oil and gas, which makes up a large proportion of their energy supplies. Some energy international companies such as Trafigura and Vitol have also stated that they will uphold long-term contracts with Russia to continue buying its crude. 

But there are no countries more dedicated to Russian oil, at present, than India and China. Both countries are continuing to buy cheap Russian oil as many Western countries reject Russian energy in a stand against the conflict. In fact, Russian oil exports to India have increased significantly since the invasion with it dropping its price as international demand for the energy source wanes. Experts believe that China will also soon increase its import of Russian crude. 

The ongoing reliance on Russian oil supplies is mainly in response to the soaring price of oil in recent months, leading governments to look for the cheapest options. For China and India, maintaining energy security by accessing low-cost oil sources is a top priority. 

Related: Saudi Arabia Hikes Oil Prices Despite Record Discounts For Russian Crude

Russia has been offering its Urals crude at a significant discount to encourage countries to maintain their partnerships with the oil giant as the conflict continues. As the U.S. and other countries around the world refuse to buy Russian oil, it could be left with an excess of oil supplies by the end of the year if it is not able to sell them to alternative markets. 

 Earlier this month the International Energy Agency stated, “Urals crude from Russia is being offered at record discounts, but uptake is limited so far, with Asian oil importers, for the most part, sticking to traditional suppliers in the Middle East, Latin America, and Africa.” And “As of mid-March, we see the potential for 3 million barrels a day of Russian oil supply to be shut in starting from April, but that could increase if restrictions or public condemnation escalate,” the organization said

It is uncertain whether this will continue to be the case or whether the temptation to buy low-cost oil will be too high for some. In India, the government has decided to increase its imports of Russian oil. There were no regular imports of crude to India in 2021 and none registered after December, but since the beginning of March, five Russian oil cargoes, around 6 million barrels, have been sent to India. It is thought that Russia may offer India a discount of around 20 percent compared to Brent prices, making it very attractive during a time of record-high prices and energy shortages. India currently imports between 80 and 85 percent of its crude, meaning this is a strong economic decision.  

In China, the government has, so far, refused to denounce Russia’s invasion of Ukraine. This is likely a strategic move to maintain its strong trade relations with Russia. China is the world’s largest oil and natural gas importer, and in 2021 Russia was China’s second-biggest oil supplier. China, therefore, continues to rely heavily on Russia for its energy security. There is already evidence to suggest that China will continue its partnership with Russia having maintained its oil imports from both Iran and Venezuela despite U.S. sanctions on the two oil-rich states. 

So, could this be an opportunity for countries willing to maintain relations with Russia to get access to cheap energy and solidify their trade links? For some, it may be a question of economics versus politics, with energy security being simply too important to condemn Russia’s actions by cutting their oil and gas imports from the country. The EU will likely follow the U.S. and other government actions in stopping oil imports from Russia, but for China and India, the outlook is not so certain. 

By Felicity Bradstock for Oilprice.com

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