For the past few months, there has been a conflict between Russia and Ukraine, which has affected the global stock market and trade.
Ever since Russia started its invasion of Ukraine, Western countries such as the European Union, the UK, and the US have imposed many economic sanctions on Russia.
Russian financial institutions have been removed from the SWIFT international payment system, making to and from transactions difficult. Apart from this, Russia is also a huge global oil exporter and plays a significant role in its economy.
But a few days ago the US announced that they are banning Russian oil and gas imports and among so many economic sanctions, the US banning Russian oil imports is negatively affecting the Russian economy.
The value of the Russian currency Ruble has also fallen due to these reasons. All these geopolitical tensions can lead to a crunch in the crude oil supply, due to which the prices of oil have also increased sharply in the last few weeks.
And this is not a good sign for India because India imports more than 80% of its total oil requirement and an increase in oil price will raise the fiscal deficit and inflation levels in India.
So now in this whole situation, Russia is looking for new buyers to export its oil on one hand, and on the other hand, India wants to buy oil at a low price to reduce its increasing energy bill.
According to some reports Russia is offering crude oil and other commodities to India at heavy discounts. So in such a situation, if India buys Russian oil at a discount, then it can be beneficial for the Indian economy, but can India import crude oil from Russia, there are many factors involved behind it.
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How much crude oil does India import from Russia
How much oil is currently traded between India and Russia: India’s total oil imports are around 80%, out of which India imports only 2% to 3% oil from Russia.
There is some reason why India imports so little oil from Russia. Finance Minister Nirmala Sitaraman also recently said that an open offer was made by the Russians where they can offer crude oil at a discounted price, but she said that there are many factors that they have to take into account.
The finance minister also said that even if India imports oil from Russia at a discounted price, all gains due to insurance costs will be offset.
Russia-India oil deal: explained
Can India buy oil from Russia in the current situation? According to some reports, India is exploring options to buy discount crude oil offered by Russia as the European Union, US, and Britain have imposed a lot of sanctions on Russia.
So because of that Russian banks and companies are not able to do business in major currencies such as the dollar and euro.
Rupee-Ruble trade mechanism
In such a situation, according to some reports, an Indian government official also told that the Indian and Russian governments are trying to work out a Rupee-Ruble trade mechanism.
Payment for exports made by India through this arrangement will be made in Rupee instead of Dollar or Euro. Similar exports made by Russia will be paid in Ruble.
Apart from this, according to the news sources, RBI is also consulting some banks like UCO Bank for facilitating the payment. If this mechanism is setup then oil trade between India and Russia can increase.
India had set up a similar mechanism with Iran in the past as well. However, there are many challenges in importing oil from Russia like the availability of shipping vessels, the high insurance premium on imports from Russia, etc.
Apart from this, due to the different oil blends, Indian companies will also have to assess the refining capacity and the cost associated with it.
Apart from this, the situation is very sensitive geopolitical, which is another challenge in India importing oil from Russia.
In such a situation, until an official statement is released by the Indian government, it is difficult to comment whether India will import oil from Russia at a discount or not.
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This article is only for education purpose and the author has his own views and research, so if you invest in these stocks then do it at your own risk and do the research yourself before investing.
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FAQ
India’s total oil imports are around 80%, out of which India imports only 2% to 3% oil from Russia.
According to some reports, India is exploring options to buy discount crude oil offered by Russia as the European Union, US, and Britain have imposed a lot of sanctions on Russia.
However, there are many challenges in importing oil from Russia like the availability of shipping vessels, the high insurance premium on imports from Russia, etc.
In such a situation, until an official statement is released by the Indian government, it is difficult to comment whether India will import oil from Russia at a discount or not.
The European Union, US, and Britain have imposed a lot of sanctions on Russia. So because of that Russian banks and companies are not able to do business in major currencies such as the dollar and euro.
In such a situation, the Indian and Russian governments are trying to work out a Rupee-Ruble trade mechanism.
Payment for exports made by India through this arrangement will be made in Rupee instead of Dollar or Euro. Similar exports made by Russia will be paid in Ruble.